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THE    HISTORY   OF 
THE    STANDARD    OIL    COMPANY 


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<>pyrn;ht,  /904,  by  A 


JOHN    DAVISON    ROCKEFELLER   IN    I904 
Born  July  8,  1839 


THE  HISTORY  OF 

THE   STANDARD 
OIL  COMPANY 


BY 


IDA  M.  TARBELL 

AUTHOR  OF 

THE  LIFE  OF  ABRAHAM  LINCOLN,  THE  LIFE  OF  NAPOLEON  BONAPARTE, 

AND  MADAME  ROLAND:   A  BIOGRAPHICAL  STUDY 


ILLUSTRATED    WITH    PORTRAITS 
PICTURES   AND   DIAGRAMS 


VOLUME   ONE 


NEW    YORK 

McCLURE,    PHILLIPS   #  CO. 

MCMV 


* 

4 


Copyright,   1904,   by 
McCLURE,  PHILLIPS  tf  CO. 

Published,  November,    1904,   N 
Second   Impression 


K 


Copyright,  1902,  1903,  1904,  by  The  S.  S.  McClure  Co. 


"An  Institution  is  the  lengthened  shadow  of  one  man." 

EMERSON,    IN    ESSAY    ON    "SELF-RELIANCE.' 


"  The  American  Beauty  Rose  can  be  produced  in  its  splen- 
dor and  fragrance  only  by  sacrificing  the  early  buds  which 
grow  up  around  it." 

J.   D.   ROCKEFELLER,  JR.,   IN   AN    ADDRESS   ON    TRUSTS, 
TO  THE    STUDENTS  OF   BROWN   UNIVERSITY. 


4, 


y 


PREFACE 

THIS  work  is  the  outgrowth  of  an  effort  on  the  part 
of  the  editors  of  McClure's  Magazine  to  deal  con- 
cretely in  their  pages  with  the  trust  question.  In 
order  that  their  readers  might  have  a  clear  and 
succinct  notion  of  the  processes  by  which  a  particular  in- 
dustry passes  from  the  control  of  the  many  to  that  of  the 
few,  they  decided  a  few  years  ago  to  publish  a  detailed  nar- 
rative of  the  history  of  the  growth  of  a  particular  trust.  The 
Standard  Oil  Trust  was  chosen  for  obvious  reasons.  It  was 
the  first  in  the  field,  and  it  has  furnished  the  methods,  the 
charter,  and  the  traditions  for  its  followers.  It  is  the  most 
perfectly  developed  trust  in  existence ;  that  is,  it  satisfies  most 
nearly  the  trust  ideal  of  entire  control  of  the  commodity  in 
which  it  deals.  Its  vast  profits  have  led  its  officers  into  vari- 
ous allied  interests,  such  as  railroads,  shipping,  gas,  copper, 
iron,  steel,  as  well  as  into  banks  and  trust  companies,  and 
to  the  acquiring  and  solidifying  of  these  interests  it  has 
applied  the  methods  used  in  building  up  the  Oil  Trust.  It 
has  led  in  the  struggle  against  legislation  directed  against 
combinations.  Its  power  in  state  and  Federal  government, 
in  the  press,  tin  the  college,]  in  the  pulpit,  is  generally  rec- 
ognised. The  perfection  of  the  organisation  of  the  Standard, 
I  the  ability  and  daring  with  which  it  has  carried  out  its 
projects,  make  it  the  pre-eminent  trust  of  the  world — the  one 
whose  story  is  best  fitted  to  illuminate  the  subject  of  combina- 
tions of  capital. 
Another  important  consideration  with  the  editors  in  decid- 
ing that  the  Standard  Oil  Trust  was  the  best  adapted  to  illus- 


PREFACE 

trate  their  meaning,  was  the  fact  that  it  is  one  of  the  very  few 
business  organisations  of  the  country  whose  growth  could  be 
traced  in  trustworthy  documents.  There  is  in  existence  just 
such  documentary  material  for  a  history  of  the  Standard  Oil 
Company  as  there  is  for  a  history  of  the  Civil  War  or  the 
French  Revolution,  or  any  other  national  episode  which  has 
divided  men's  minds.  This  has  come  about  largely  from  the 
fact  that  almost  constantly  since  its  organisation  in  1870  the 
Standard  Oil  Company  has  been  under  investigation  by  the 
Congress  of  the  United  States  and  by  the  Legislatures  of  vari- 
ous states  in  which  it  has  operated,  on  the  suspicion  that  it 
was  receiving  rebates  from  the  railroads  and  was  practising 
methods  in  restraint  of  free  trade.  In  1872  and  again  in  1876 
it  was  before  Congressional  committees,  in  1879  it  was  before 
examiners  of  the  Commonwealth  of  Pennsylvania  and  before 
committees  appointed  by  the  Legislatures  of  New  York  and 
of  Ohio  for  investigating  railroads.  Its  operations  figured 
constantly  in  the  debate  which  led  up  to  the  creation  of  the 
Interstate  Commerce  Commission  in  1887,  and  again  and 
again  since  that  time  the  Commission  has  been  called  upon 
to  examine  directly  or  indirectly  into  its  relation  with  the 
railroads. 

In  1888,  in  the  Investigation  of  Trusts  conducted  by  Con- 
gress and  by  the  state  of  New  York,  the  Standard  Oil  Com- 
pany was  the  chief  subject  for  examination.  In  the  state  of 
Ohio,  between  1882  and  1892,  a  constant  warfare  was  waged 
against  the  Standard  in  the  courts  and  Legislature,  resulting 
in  several  volumes  of  testimony.  The  Legislatures  of  many 
other  states  concerned  themselves  with  it.  This  hostile  legisla- 
tion compelled  the  trust  to  separate  into  its  component  parts 
in  1892,  but  investigation  did  not  cease;  indeed,  in  the  last 
great  industrial  inquiry,  conducted  by  the  Commission  ap- 
pointed by  President  McKinley,  the  Standard  Oil  Company 
was  constantly  under  discussion,  and  hundreds  of  pages  of 

[viii] 


PREFACE 

testimony  on  it  appear  in  the  nineteen  volumes  of  reports 
which  the  Commission  has  submitted. 

This  mass  of  testimony,  all  of  it  submitted  under  oath  it 
should  be  remembered,  contains  the  different  charters  and 
agreements  under  which  the  Standard  Oil  Trust  has  operated, 
many  contracts  and  agreements  with  railroads,  with  refineries, 
with  pipe-lines,  and  it  contains  the  experiences  in  business 
from  1872  up  to  1900  of  multitudes  of  individuals.  These 
experiences  have  exactly  the  quality  of  the  personal  reminis- 
cences of  actors  in  great  events,  with  the  additional  value  that 
they  were  given  on  the  witness  stand,  and  it  is  fair,  therefore, 
to  suppose  that  they  are  more  cautious  and  exact  in  statements 
than  many  writers  of  memoirs  are.  These  investigations,  cov- 
ering as  they  do  all  of  the  important  steps  in  the  develop- 
ment of  the  trust,  include  full  accounts  of  the  point  of  view 
of  its  officers  in  regard  to  that  development,  as  well  as  their 
explanations  of  many  of  the  operations  over  which  controversy 
has  arisen.  Hundreds  of  pages  of  sworn  testimony  are  found 
in  these  volumes  from  John  D.  Rockefeller,  William  Rocke- 
feller, Henry  M.  Flagler,  H.  H.  Rogers,  John  D.  Archbold, 
Daniel  O'Day  and  other  members  of  the  concern. 

Aside  from  the  great  mass  of  sworn  testimony  accessible  to 
the  student  there  is  a  large  pamphlet  literature  dealing  with 
different  phases  of  the  subject,  and  there  are  files  of  the  numer- 
ous daily  newspapers  and  monthly  reviews,  supported  by  the 
Oil  Regions,  in  the  columns  of  which  are  to  be  found  not 
only  statistics  but  full  reports  of  all  controversies  between 
oil  men.  No  complete  collection  of  this  voluminous  printed 
material  has  ever  been  made,  but  several  small  collections 
exist,  and  in  one  or  another  of  these  I  have  been  able  to  find 
practically  all  of  the  important  documents  relating  to  the 

Iubject.  Mrs.  Roger  Sherman  of  Titusville,  Pennsylvania, 
wns  the  largest  of  these  collections,  and  in  it  are  to  be 
ound  copies  of  the  rarest  pamphlets.  Lewis  Emery,  Jr.,  of 


PREFACE 

Bradford,  the  late  E.  G.  Patterson  of  Titusville,  the  late 
Henry  D.  Lloyd,  author  of  "Wealth  vs.  Commonwealth," 
William  Hasson  of  Oil  City,  and  P.  C.  Boyle,  the  editor  of 
the  Oil  City  Derrick,  have  collections  of  value,  and  they  have 
all  been  most  generous  in  giving  me  access  to  their  books. 

But  the  documentary  sources  of  this  work  are  by  no  means 
all  printed.  The  Standard  Oil  Trust  and  its  constituent  com- 
panies have  figured  in  many  civil  suits,  the  testimony  of  which 
is  still  in  manuscript  in  the  files  of  the  courts  where  the  suits 
were  tried.  These  manuscripts  have  been  examined  on  the 
ground,  and  in  numerous  instances  full  copies  of  affidavits 
and  of  important  testimony  have  been  made  for  permanent 
reference  and  study.  I  have  also  had  access  to  many  files  of 
private  correspondence  and  papers,  the  most  important  being 
that  of  the  officers  and  counsel  of  the  Petroleum  Producers' 
Union  from  1878  to  1880,  that  covering  the  organisation 
from  1887  to  1895  of  the  various  independent  companies 
which  resulted  in  the  Pure  Oil  Company,  and  that  containing 
the  material  prepared  by  Roger  Sherman  for  the  suit  brought 
in  1897  by  the  United  States  Pipe  Line  against  certain  of  the 
Standard  companies  under  the  Sherman  anti-trust  law. 

As  many  of  the  persons  who  have  been  active  in  the  develop- 
ment of  the  oil  industry  are  still  living,  their  help  has  been 
freely  sought.  Scores  of  persons  in  each  of  the  great  oil  centres 
have  been  interviewed,  and  the  comprehension  and  interpre- 
tation of  the  documents  on  which  the  work  is  based  have 
been  materially  aided  by  the  explanations  which  the  actors 
in  the  events  under  consideration  were  able  to  give. 

When  the  work  was  first  announced  in  the  fall  of  1901,  the 
Standard  Oil  Company,  or  perhaps  I  should  say  officers  of 
the  company,  courteously  offered  to  give  me  all  the  assistance 
in  their  power,  an  offer  of  which  I  have  freely  taken  advantage. 
In  accepting  assistance  from  Standard  men  as  from  inde- 
pendents I  distinctly  stated  that  I  wanted  facts,  and  that  I 


PREFACE 

reserved  the  right  to  use  them  according  to  my  own  judgment 
of  their  meaning,  that  my  object  was  to  learn  more  perfectly 
what  was  actually  done — not  to  learn  what  my  informants 
thought  of  what  had  been  done.  It  is  perhaps  not  too  much 
to  say  that  there  is  not  a  single  important  episode  in  the 
history  of  the  Standard  Oil  Company,  so  far  as  I  know  it, 
or  a  notable  step  in  its  growth,  which  I  have  not  discussed 
more  or  less  fully  with  officers  of  the  company. 

It  is  needless  to  add  that  the  conclusions  expressed  in  this 
work  are  my  own. 

I.  M.  T. 

I 


[xi] 


CONTENTS 

PREFACE Pages  vii-xi 

CHAPTER   ONE 
THE  BIRTH  OF  AN  INDUSTRY 

PETROLEUM  FIRST  A  CURIOSITY  AND  THEN  A  MEDICINE— DISCOVERY  OF 
ITS  REAL  VALUE— THE  STORY  OF  HOW  IT  CAME  TO  BE  PRODUCED  IN 
LARGE  QUANTITIES— GREAT  FLOW  OF  OIL— SWARM  OF  PROBLEMS  TO 
SOLVE— STORAGE  AND  TRANSPORTATION— REFINING  AND  MARKETING- 
RAPID  EXTENSION  OF  THE  FIELD  OF  OPERATION— WORKERS  IN  GREAT 
NUMBERS  WITH  PLENTY  OF  CAPITAL— COSTLY  BLUNDERS  FREQUENTLY 
MADE— BUT  EVERY  DIFFICULTY  BEING  MET  AND  OVERCOME— THE  NORMAL 
UNFOLDING  OF  A  NEW  AND  WONDERFUL  OPPORTUNITY  FOR  INDIVIDUAL 
ENDEAVOUR Pages  3~37 

CHAPTER  TWO  , 
THE   RISE    OF   THE   STANDARD  OIL  COMPANY 

JOHN  D.  ROCKEFELLER'S  FIRST  CONNECTION  WITH  THE  OIL  BUSINESS- 
STORIES  OF  HIS  EARLY  LIFE  IN  CLEVELAND  — HIS  FIRST  PARTNERS- 
ORGANISATION  OF  THE  STANDARD  OIL  COMPANY  IN  JUNE,  1870— ROCKE- 
FELLER'S ABLE  ASSOCIATES— FIRST  EVIDENCE  OF  RAILWAY  DISCRIMINA- 
TIONS IN  THE  OIL  BUSINESS— REBATES  FOUND  TO  BE  GENERALLY  GIVEN 
TO  LARGE  SHIPPERS— FIRST  PLAN  FOR  A  SECRET  COMBINATION— THE 
SOUTH  IMPROVEMENT  COMPANY— SECRET  CONTRACTS  MADE  WITH  THE 
RAILROADS  PROVIDING  REBATES  AND  DRAWBACKS— ROCKEFELLER  AND 
ASSOCIATES  FORCE  CLEVELAND  REFINERS  TO  JOIN  THE  NEW  COMBINA- 
TION OR  SELL— RUMOUR  OF  THE  PLAN  REACHES  THE  OIL  REGIONS. 

Pages  38-69 

[xiii] 


CONTENTS 

CHAPTER   THREE 
THE  OIL  WAR   OF    1872 

RISING  IN  THE  OIL  REGIONS  AGAINST  THE  SOUTH  IMPROVEMENT  COMPANY 
—PETROLEUM  PRODUCERS'  UNION  ORGANISED— OIL  BLOCKADE  AGAINST 
MEMBERS  OF  SOUTH  IMPROVEMENT  COMPANY  AND  AGAINST  RAILROADS 
IMPLICATED— CONGRESSIONAL  INVESTIGATION  OF  187a  AND  THE  DOCU- 
MENTS IT  REVEALED— PUBLIC  DISCUSSION  AND  GENERAL  CONDEMNATION 
OF  THE  SOUTH  IMPROVEMENT  COMPANY— RAILROAD  OFFICIALS  CONFER 
WITH  COMMITTEE  FROM  PETROLEUM  PRODUCERS'  UNION— WATSON 
AND  ROCKEFELLER  REFUSED  ADMITTANCE  TO  CONFERENCE— RAILROADS 
REVOKE  CONTRACTS  WITH  SOUTH  IMPROVEMENT  COMPANY  AND  MAKE 
CONTRACT  WITH  PETROLEUM  PRODUCERS'  UNION— BLOCKADE  AGAINST 
SOUTH  IMPROVEMENT  COMPANY  LIFTED— OIL  WAR  OFFICIALLY  ENDED— 
ROCKEFELLER  CONTINUES  TO  GET  REBATES— HIS  GREAT  PLAN  STILL  A 
LIVING  PURPOSE Pages  7°-io3 


CHAPTER   FOUR 

V 

"AN  UNHOLY  ALLIANCE" 

ROCKEFELLER  AND  HIS  PARTY  NOW  PROPOSE  AN  OPEN  INSTEAD  OF  A 
SECRET  COMBINATION— "  THE  PITTSBURG  PLAN"— THE  SCHEME  IS  NOT 
APPROVED  BY  THE  OIL  REGIONS  BECAUSE  ITS  CHIEF  STRENGTH  IS  THE 
REBATE  — ROCKEFELLER  NOT  DISCOURAGED  — THREE  MONTHS  LATER 
BECOMES  PRESIDENT  OF  NATIONAL  REFINERS'  ASSOCIATION— FOUR-FIFTHS 
OF  REFINING  INTEREST  OF  UNITED  STATES  WITH  HIM— OIL  REGIONS 
AROUSED— PRODUCERS'  UNION  ORDER  DRILLING  STOPPED  AND  A  THIRTY 
DAY  SHUT-DOWN  TO  COUNTERACT  FALLING  PRICE  OF  CRUDE— PETRO- 
LEUM PRODUCERS*  AGENCY  FORMED  TO  ENABLE  PRODUCERS  TO  CON- 
TROL THEIR  OWN  OIL— ROCKEFELLER  OUTGENERALS  HIS  OPPONENTS  AND 
FORCES  A  COMBINATION  OF  REFINERS  AND  PRODUCERS  — PRODUCERS* 
ASSOCIATION  AND  PRODUCERS'  AGENCY  SNUFFED  OUT— NATIONAL  REFIN- 
ERS' ASSOCIATION  DISBANDS— ROCKEFELLER  STEADILY  GAINING  GROUND. 

Pages   IO4-128 

[xiv] 


CONTENTS 

CHAPTER   FIVE 
LAYING  THE   FOUNDATIONS  OF  A  TRUST 

VIDENCE  OF  REAPPEARANCE  OF  REBATES  SOON  AFTER  AGREEMENT  OF 
MARCH  25  IS  SIGNED  —  PRINCIPLE  THOROUGHLY  ESTABLISHED  THAT 
LARGE  SHIPPERS  SHALL  HAVE  ADVANTAGES  OVER  SMALL  SHIPPERS 
IN  SPITE  OF  RAILROADS'  DUTY  AS  COMMON  CARRIERS— AGREEMENT 
WORKED  OUT  BY  WHICH  THREE  ROADS  ARE  TO  HAVE  FIXED  PERCENT- 
AGE OF  EASTERN  SHIPMENTS— OIL  REGIONS  ROBBED  OF  THEIR  GEO- 
GRAPHICAL ADVANTAGE— THE  RUTTER  CIRCULAR— ROCKEFELLER  NOW 
SECRETLY  PLANS  REALISATION  OF  HIS  DREAM  OF  PERSONAL  CONTROL 
OF  THE  REFINING  OF  OIL  —  ORGANISATION  OF  THE  CENTRAL  ASSO- 
CIATION—H.  H.  ROGERS*  DEFENCE  OF  THE  PLAN— ROCKEFELLER'S  QUIET 
AND  SUCCESSFUL  CANVASS  FOR  ALLIANCES  WITH  REFINERS— THE  REBATE 
HIS  WEAPON— CONSOLIDATION  BY  PERSUASION  OR  FORCE— MORE  TALK 
OF   A   UNITED    EFFORT   TO   COUNTERACT    THE   MOVEMENT. 

Pages   129-166 


CHAPTER   SIX 
STRENGTHENING  THE   FOUNDATIONS 

FIRST  INTERSTATE  COMMERCE  BILL— THE  BILL  PIGEON-HOLED  THROUGH 
EFFORTS  OF  STANDARD'S  FRIENDS— INDEPENDENTS  SEEK  RELIEF  BY  PRO- 
POSED CONSTRUCTION  OF  PIPE-LINES— PLANS  FOR  THE  FIRST  SEABOARD 
PIPE-LINE— SCHEME  FAILS  ON  ACCOUNT  OF  MISMANAGEMENT  AND  STAND- 
ARD AND  RAILROAD  OPPOSITION— DEVELOPMENT  OF  THE  EMPIRE  TRANS- 
PORTATION COMPANY  AND  ITS  PROPOSED  CONNECTION  WITH  THE  REFINING 
BUSINESS— STANDARD,  ERIE  AND  CENTRAL  FIGHT  THE  EMPIRE  TRANSPOR- 
TATION COMPANY  AND  ITS  BACKER,  THE  PENNSYLVANIA  RAILROAD— THE 
PENNSYLVANIA  FINALLY  QUITS  AFTER  A  BITTER  AND  COSTLY  WAR— EMPIRE 
LINE  SOLD  TO  THE  STANDARD— ENTIRE  PIPE-LINE  SYSTEM  OF  OIL  REGIONS 
NOW  IN  ROCKEFELLER'S  HANDS— NEW  RAILROAD  POOL  BETWEEN  FOUR 
ROADS— ROCKEFELLER  PUTS  INTO  OPERATION  SYSTEM  OF  DRAWBACKS 
ON  OTHER  PEOPLE'S  SHIPMENTS— HE  PROCEEDS  RAPIDLY  WITH  THE  WORK 
OF  ABSORBING  RIVALS Pages  1 67-207 

[XV] 


CONTENTS 

CHAPTER   SEVEN 
THE  CRISIS  OF  1878 


/ 


A  RISE  IN  OIL— A  BLOCKADE  IN  EXPORTS— PRODUCERS  DO  NOT  GET  THEIR 
SHARE  OF  THE  PROFITS— THEY  SECRETLY  ORGANISE  THE  PETROLEUM  PRO- 
DUCERS* UNION  AND  PROMISE  TO  SUPPORT  PROPOSED  INDEPENDENT  PIPE- 
LINES—ANOTHER INTERSTATE  COMMERCE  BILL  DEFEATED  AT  WASHINGTON 
—"IMMEDIATE  SHIPMENT  "—INDEPENDENTS  HAVE  TROUBLE  GETTING 
CARS— RIOTS  THREATENED— APPEAL  TO  GOVERNOR  HARTRANFT— SUITS 
BROUGHT  AGAINST  UNITED  PIPE-LINES,  PENNSYLVANIA  RAILROAD  AND 
OTHERS— INVESTIGATIONS  PRECIPITATED  IN  OTHER  STATES— THE  HEP- 
BURN COMMISSION  AND  THE  OHIO  INVESTIGATION— EVIDENCE  THAT  THE 
STANDARD  IS  A  CONTINUATION  OF  THE  SOUTH  IMPROVEMENT  COMPANY- 
PRODUCERS  FINALLY  DECIDE  TO  PROCEED  AGAINST  STANDARD  OFFICIALS- 
ROCKEFELLER  AND  EIGHT  OF  HIS  ASSOCIATES  INDICTED  FOR  CONSPIRACY. 

Pages  208—240 


CHAPTER   EIGHT 
THE   COMPROMISE   OF   1880 

THE  PRODUCERS'  SUIT  AGAINST  ROCKEFELLER  AND  HIS  ASSOCIATES  USED 
BY  THE  STANDARD  TO  PROTECT  ITSELF— SUITS  AGAINST  THE  TRANSPOR- 
TATION COMPANIES  ARE  DELAYED— TRIAL  OF  ROCKEFELLER  AND  HIS 
ASSOCIATES  FOR  CONSPIRACY  POSTPONED  —  ALL  OF  THE  SUITS  WITH- 
DRAWN IN  RETURN  FOR  AGREEMENTS  OF  THE  STANDARD  AND  THE 
PENNSYLVANIA  TO  CEASE  THEIR  PRACTICES  AGAINST  THE  PRODUCERS— 
WITH  THIS  COMPROMISE  THE  SECOND  PETROLEUM  PRODUCERS'  UNION 
COMES  TO  AN  END— PRODUCERS  THEMSELVES  TO  BLAME  FOR  NOT  STAND- 
ING BEHIND  THEIR  LEADERS— STANDARD  AGAIN  ENFORCES  ORDERS  OBJEC- 
TIONABLE TO  PRODUCERS— MORE  OUTBREAKS  IN  THE  OIL  REGIONS- 
ROCKEFELLER  HAVING  SILENCED  ORGANISED  OPPOSITION  PROCEEDS  TO 
SILENCE  INDIVIDUAL  COMPLAINT Pages   24 1 -26 2 


APPENDIX Pages  263-406 

[xvi] 


LIST    OF    ILLUSTRATIONS 


PORTRAIT   OF  JOHN    DAVISON   ROCKEFELLER    IN    1904        .         .  Frontispiece 

Born  July  8,    1839.  facing 

PAGE 

PORTRAIT    OF   E.    L.    DRAKE 8 

In   1859  Drake  drilled  near  Titusville,  Pennsylvania,  the  first  artesian  well  put  down 
for  petroleum.      He  is  popularly  said  to  have   "discovered  oil." 

THE    DRAKE    WELL   IN    1859— THE    FIRST    OIL   WELL IO 

FAC-SIMILE  OF  A  LABEL  USED  BY  S.  M.  KIER  IN  ADVERTISING  ROCK- 
OIL  OBTAINED  IN  DRILLING  SALT  WELLS  NEAR  TARENTUM,  PENN- 
SYLVANIA  34 

FAGUNDUS— A  TYPICAL    OIL   TOWN 34 

PORTRAIT   OF  JOHN    D.    ROCKEFELLER    IN    187a 40 

PORTRAIT    OF    W.    G.    WARDEN 53 

Secretary  of  the  South  Improvement  Company. 

PORTRAIT   OF    PETER    H.    WATSON 53 

President  of  the  South  Improvement  Company. 

PORTRAIT  OF  CHARLES  LOCKHART 53 

A   member  of  the    South    Improvement   Company,    and   later  of  the   Standard   Oil 
Company.      At  his   death  in   1904  the  oldest  living  oil  operator. 

PORTRAIT    OF    HENRY    M.     FLAGLER    IN    1882 53 

Active  partner  of  John    D.    Rockefeller  in  the  oil  business  since  1867.     Officer  of 
the  Standard  Oil  Company  since  its  organization  in   1870. 

PORTRAIT   OF   THOMAS    A.    SCOTT 60 

The  contract  of  the  South   Improvement  Company  with  the   Pennsylvania   Railroad 
was  signed  by  Mr.    Scott,   then  vice-president  of  the  road. 

PORTRAIT    OF    WILLIAM    H.    VANDERBILT      .  .  .         .         .         .  .         60 

The   contract   of  the   South    Improvement    Company   with  the   New   York   Central 
was  signed  by  Mr.   Vanderbilt,   then  vice-president  of  the  road. 


PORTRAIT    OF  JAY    GOULD 60 

1872.     Sig 

[  xvii  ] 


President   of  the   Erie   Railroad   in    1872.      Signer  of  the   contract  with   the   South 
Improvement  Company. 


LIST   OF   ILLUSTRATIONS 


FACINC 
PAGE 


PORTRAIT   OF   COMMODORE    CORNELIUS   VANDERBILT  60 

President  of  the  New  York  Central  Railroad  when  the  contract  with  the  South 
Improvement  Company  was  signed. 

PORTRAIT   OF  JOHN    D.    ARCHBOLD    IN    187a 74 

Now  vice-president  of  the  Standard  Oil  Company.  Mr.  Archbold,  whose  home,  in 
1872,  was  in  Titusville,  Pennsylvania,  although  one  of  the  youngest  refiners  of 
the  Creek,  was  one  of  the  most  active  and  efficient  in  breaking  up  the  South 
Improvement  Company. 

PORTRAIT   OF   HENRY    H.    ROGERS  IN    1872 88 

Now  president  of  the  National  Transit  Company  and  a  director  of  the  Standard 
Oil  Company.  The  opposition  to  the  South  Improvement  Company  among 
the  New  York  refiners  was  led  by  Mr.   Rogers. 

PORTRAIT  OF    M.    N.    ALLEN HO 

Independent  refiner  of  Titusville.  Editor  of  the  Courier^  an  able  opponent  of  the 
South  Improvement  Company. 

PORTRAIT    OF  JOHN    FERTIG HO 

Prominent  oil  operator.  Until  1893  active  in  Producers'  and  Refiners'  Company 
(independent). 

PORTRAIT    OF   CAPT.    WILLIAM    HASSON HO 

President  of  the  Petroleum   Producers'  Association  of  1872. 

PORTRAIT    OF  JOHN    L.    McKINNEY HO 

Prominent  oil  operator.  Until  1889  an  independent.  Now  member  of  the  Stand- 
ard Oil  Company. 

PORTRAIT   OF  JAMES    S.    TARR I2Z 

Owner  of  the  "  Tarr  Farm,"  one  of  the  richest  oil  territories  on  Oil  Creek. 

PORTRAIT    OF   WILLIAM    BARNSDALL 122 

The  second  oil  well  on  Oil  Creek  was  put  down  by  Mr.    Barnsdall. 

PORTRAIT    OF  JAMES    S.    McCRAY 122 

Owner  of  the  McCray  Farm  near  Petroleum  Centre. 

PORTRAIT    OF   WILLIAM    H.    ABBOTT       . 122 

One  of  the  most  prominent  of  the  early  oil  producers,  refiners  and  pipe-line  operators. 

FLEET   OF   OIL    BOATS    AT    OIL    CITY    IN    1864 1 36 

PORTRAIT   OF   GEORGE    H.    BISSELL 1 46 

Founder  of  the  first  oil  company  in  the  United  State*. 

PORTRAIT    OF  JONATHAN    WATSON  .  . 1 46 

One  of  the  owners  of  the  land  on  which  the  first  successful  well  was  drilled  for  oil. 

[  xviii  ] 


LIST   OF   ILLUSTRATIONS 

FACING 
PAGE 

PORTRAIT    OF   SAMUEL    KIER 1 46 

The  first  petroleum  refined  and  sold  for  lighting  purpose  was  made  by  Mr.  Kier  in 
the  '50s  in   Pittsburg. 

PORTRAIT    OF  JOSHUA    MERRILL 1 46 

The  chemist  and  refiner  to  whom  many  of  the  most  important  processes  now  in 
use  in  making  illuminating  and   lubricating  oils  are  due. 

PORTRAIT   OF   A.   J.    CASSATT    IN    1877 1 84 

Third  vice-president  of  the  Pennsylvania  Railroad  in  charge  of  transportation 
when  first  contract  was  made  by  that  road  with  the  Standard  Oil  Company. 

PORTRAIT  OF  GENERAL  GEORGE  B.  McCLELLAN 1 84 

President  of  the  Atlantic  and  Great  Western  Railroad  at  the  time  of  the  South 
Improvement  Company.     General  McClellan  did  not  sign  the  contract. 

PORTRAIT    OF   GENERAL  JAMES    H.    DEVEREUX 1 84 

Who  in  1868  as  vice-president  of  the  Lake  Shore  and  Michigan  Southern  Railroad 
first  granted  rebates  to  Mr.   Rockefeller's  firm. 

PORTRAIT    OF  JOSEPH    D.    POTTS 1 84 

President  of  the  Empire  Transportation  Company.  Leader  in  the  struggle  between 
the   Pennsylvania  Railroad  and  the  Standard  Oil  Company  in   1877. 

WOODEN    CAR   TANKS 212 

BOILER    TANK    CARS 212 

WOODEN   TANKS    FOR    STORING   OIL        .         . 212 

RAILROAD    TERMINAL   OF    AN    EARLY    PIPE    LINE  .         .         .  .  .212 

PORTRAIT    OF    E.    G.    PATTERSON 248 

From  1872  to  1880  the  chief  advocate  in  the  Oil  Region  of  an  interstate  commerce 
law.  Assisted  in  drafting  the  bills  of  1876  and  1880.  Abandoned  the  inde- 
pendent interests  at  the  time  of  the  compromise  of  1880. 

PORTRAIT    OF    ROGER    SHERMAN 248 

Chief  counsel  of  the  Petroleum  Producers'  Union  from  1878  to  1880.  From 
1880  to  1885  counsel  for  the  Standard  Oil  Company.  From  1885  to  his 
death  in   1893   counsel  of  the  allied  independents. 

PORTRAIT    OF    BENJ.    B.    CAMPBELL 248 

President  of  the  Petroleum  Producers'  Union  from  1878  to  1880.  Independent 
refiner  and  operator  until  his  death. 

PORTRAIT    OF  JOSIAH    LOMBARD 248 

Prominent  independent  refiner  of  N.  Y.  City,  whose  firm  was  the  only  one  to  keep 
its  contract  with  the  Tidewater  Pipe  Line  Company  in   1880. 


[xix] 


THE    HISTORY   OF 
THE    STANDARD    OIL    COMPANY 


CHAPTER   ONE 

THE  BIRTH  OF  AN  INDUSTRY 

PETROLEUM  FIRST  A  CURIOSITY  AND  THEN  A  MEDICINE— DISCOVERY  OF 
ITS  REAL  VALUE— THE  STORY  OF  HOW  IT  CAME  TO  BE  PRODUCED  IN 
LARGE  QUANTITIES— GREAT  FLOW  OF  OIL— SWARM  OF  PROBLEMS  TO 
SOLVE— STORAGE  AND  TRANSPORTATION— REFINING  AND  MARKETING- 
RAPID  EXTENSION  OF  THE  FIELD  OF  OPERATION— WORKERS  IN  GREAT 
NUMBERS  WITH  PLENTY  OF  CAPITAL— COSTLY  BLUNDERS  FREQUENTLY 
MADE— BUT  EVERY  DIFFICULTY  BEING  MET  AND  OVERCOME— THE  NORMAL 
UNFOLDING  OF  A  NEW  AND  WONDERFUL  OPPORTUNITY  FOR  INDIVIDUAL 
ENDEAVOUR. 

ONE  of  the  busiest  corners  of  the  globe  at  the  open- 
ing of  the  year  1872  was  a  strip  of  Northwestern 
Pennsylvania,  not  over  fifty  miles  long,  known  the 
world  over  as  the  Oil  Regions.  Twelve  years  before 
this  strip  of  land  had  been  but  little  better  than  a  wilderness; 
its  chief  inhabitants  the  lumbermen,  who  every  season  cut 
great  swaths  of  primeval  pine  and  hemlock  from  its  hills, 
and  in  the  spring  floated  them  down  the  Allegheny  River 
to  Pittsburg.  The  great  tides  of  Western  emigration  had 
shunned  the  spot  for  years  as  too  rugged  and  unfriendly  for 
settlement,  and  yet  in  twelve  years  this  region  avoided  by 
men  had  been  transformed  into  a  bustling  trade  centre,  where 
towns  elbowed  each  other  for  place,  into  which  three  great 
trunk  railroads  had  built  branches,  and  every  foot  of  whose 

[|il  was  fought  for  by  capitalists.  It  was  the  discovery  and 
evelopment  of  a  new  raw  product,  petroleum,  which  had 
made  this  change  from  wilderness  to  market-place.  This 
product  in  twelve  years  had  not  only  peopled  a  waste  place 
of  the  earth,  it  had  revolutionised  the  world's  methods  of 

[3] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

illumination  and  added  millions  upon  millions  of  dollars  to 
the  wealth  of  the  United  States. 

Petroleum  as  a  curiosity,  and  indeed  in  a  small  way  as  an 
article  of  commerce,  was  no  new  thing  when  its  discovery  in 
quantities  called  the  attention  of  the  world  to  this  corner  of 
Northwestern  Pennsylvania.  The  journals  of  many  an  early 
explorer  of  the  valleys  of  the  Allegheny  and  its  tributaries  tell 
of  springs  and  streams  the  surfaces  of  which  were  found  cov- 
ered with  a  thick  oily  substance  which  burned  fiercely  when 
ignited  and  which  the  Indians  believed  to  have  curative  prop- 
erties. As  the  country  was  opened,  more  and  more  was  heard  of 
these  oil  springs.  Certain  streams  came  to  be  named  from  the 
quantities  of  the  substance  found  on  the  surface  of  the  water, 
as  "Oil  Creek"  in  Northwestern  Pennsylvania,  "Old  Greasy" 
or  Kanawha  in  West  Virginia.  The  belief  in  the  substance 
as  a  cure-all  increased  as  time  went  on  and  in  various  parts 
of  the  country  it  was  regularly  skimmed  from  the  surface 
of  the  water  as  cream  from  a  pan,  or  soaked  up  by  woollen 
blankets,  bottled,  and  peddled  as  a  medicine  for  man  and 
beast. 

Up  to  the  beginning  of  the  19th  century  no  oil  seems  to 
have  been  obtained  except  from  the  surfaces  of  springs  and 
streams.  That  it  was  to  be  found  far  below  the  surface  of 
the  earth  was  discovered  independently  at  various  points  in 
Kentucky,  West  Virginia,  Ohio  and  Pennsylvania  by  per- 
sons drilling  for  salt-water  to  be  used~in  manufacturing  salt. 
Not  infrequently  the  water  they  found  was  mixed  with  a 
dark-green,  evil-smelling  substance  which  was  recognised  as 
identical  with  the  well-known  "rock-oil."  It  was  necessary 
to  rid  the  water  of  this  before  it  could  be  used  for  salt,  and 
in  many  places  cisterns  were  devised  in  which  the  brine  was 
allowed  to  stand  until  the  oil  had  risen  to  the  surface.  It  was 
then  run  into  the  streams  or  on  the  ground.  This  practice  was 
soon  discovered  to  be  dangerous,  so  easily  did  the  oil  ignite. 

[4] 


THE  BIRTH  OF  AN  INDUSTRY 

In  several  places,  particularly  in  Kentucky,  so  much  oil  was 
obtained  with  the  salt-water  that  the  wells  had  to  be  aban- 
doned. Certain  of  these  deserted  salt  wells  were  opened  years 
after,  when  it  was  found  that  the  troublesome  substance  which 
had  made  them  useless  was  far  more  valuable  than  the  brine 
the  original  drillers  sought. 

Naturally  the  first  use  made  of  the  oil  obtained  in  quanti- 
i  ties  from  the  salt  wells  was  medicinal.  By  the  middle  of  the 
century  it  was  without  doubt  the  great  American  medicine. 
"Seneca  Oil"  seems  to  have  been  the  earliest  name  under 
which  petroleum  appeared  in  the  East.  It  was  followed  by 
a  large  output  of  Kentucky  petroleum  sold  under  the  name 
"American  Medicinal  Oil."  Several  hundred  thousand  bot- 
tles of  this  oil  are  said  to  have  been  put  up  in  Burkesville, 
Kentucky,   and  to  have  been  shipped  to  the   East  and  to 
Europe.  The  point  at  which  the  business  of  bottling  petro- 
leum for  medicine  was  carried  on  most  systematically  and 
extensively  was  Pittsburg.  Near  that  town,  at  Tarentum  in 
Alleghany  County,  were  located  salt  wells  owned  and  oper- 
ated in  the  forties  by  Samuel  M.  Kier.  The  oil  which  came 
up  with  the  salt-water  was  sufficient  to  be  a  nuisance,  and  Mr. 
Kier  sought  a  way  to  use  it.  Believing  it  had  curative  quali- 
ties he  began  to  bottle  it.  By  1850  he  had  worked  up  this 
business  until  "Kier's  Petroleum,  or  Rock-Oil"  was  sold  all 
over  the  United  States.  The  crude  petroleum  was  put  up  in 
eight-ounce  bottles  wrapped  in  a  circular  setting  forth  in 
1   good  patent-medicine  style  its  virtues  as  a  cure-all,  and  giv- 
l   ing  directions  about  its  use.  While  it  was  admitted  to  be 
chiefly  a  liniment  it  was  recommended  for  cholera  morbus, 
i   liver  complaint,  bronchitis  and  consumption,  and  the  dose 
i  prescribed  was  three  teaspoonfuls  three  times  a  day!  Mr. 
j   Kier's  circulars  are  crowded  with  testimonials  of  the  effi- 
15  cacy  of  rock-oil,  dated  anywhere  between   1848  and   1853. 
d  Although  his  trade  in  this  oil  was  so  extensive  he  was  not 

[5] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

satisfied  that  petroleum  was  useful  only  as  a  medicine.  He 
was  interested  in  it  as  a  lubricator  and  a  luminant.  That 
petroleum  had  the  qualities  of  both  had  been  discovered  at 
more  than  one  point  before  1850.  More  than  one  mill-owner 
in  the  districts  where  petroleum  had  been  found  was  using 
it  in  a  crude  way  for  oiling  his  machines  or  lighting  his 
works,  but  though  the  qualities  of  both  lubricator  and  lumi- 
nant were  present,  the  impurities  of  the  natural  oil  were  too 
great  to  make  its  use  general.  Mr.  Kier  seems  to  have  been 
the  first  man  to  have  attempted  to  secure  an  expert  opinion 
as  to  the  possibility  of  refining  it.  In  1849  he  sent  a  bottle  of 
oil  to  a  chemist  in  Philadelphia,  who  advised  him  to  try  dis- 
tilling it  and  burning  it  in  a  lamp.  Mr.  Kier  followed  the 
advice,  and  a  five-barrel  still  which  he  used  in  the  fifties 
for  refining  petroleum  is  still  to  be  seen  in  Pittsburg.  His 
trade  in  the  oil  he  produced  at  his  little  refinery  was  not 
entirely  local,  for  in  1858  we  find  him  agreeing  to  sell  to 
Joseph  Coffin  of  New  York  at  62^  cents  a  gallon  100 
barrels  of  "carbon  oil  that  will  burn  in  the  ordinary  coal-oil 
lamp." 

Although  Mr.  Kier  seems  to  have  done  a  good  business 
in  rock-oil,  neither  he  nor  any  one  else  up  to  this  point  had 
thought  it  worth  while  to  seek  petroleum  for  its  own  sake. 
They  had  all  simply  sought  to  utilise  what  rose  before  their 
eyes  on  springs  and  streams  or  came  to  them  mixed  with  the 
salt-water  for  which  they  drilled.  In  1854,  however,  a  man 
was  found  who  took  rock-oil  more  seriously.  This  man  was 
George  JHL  Bissell,  a  graduate  of  Dartmouth  College,  who, 
worn  out  by  an  experience  of  ten  years  in  the  South  as  a 
journalist  and  teacher,  had  come  North  for  a  change.  At  his 
old  college  the  latest  curiosity  of  the  laboratory  was  shown! 
him — the  bottle  of  rock-oil — and  the  professor  contended  that 
it  was  as  good,  or  better,  than  coal  for  making  illuminating! 
oil.  Bissell  inquired  into  its  origin,  and  was  told  that  it  came' } 

[6] 


THE  BIRTH  OF  AN  INDUSTRY 

from  oil  springs  located  in  Northwestern  Pennsylvania  on 
the  farm  of  a  lumber  firm,  Brewer,  Watson  and  Company. 
These  springs  had  long  yielded  a  supply  of  oil  which  was  regu- 
larly collected  and  sold  for  medicine,  and  was  used  locally  by 
mill-owners  for  lighting  and  lubricating  purposes. 

Bissell  seems  to  have  been  impressed  with  the  commercial 
possibilities  of  the  oil,  for  he  at  once  organised  a  company, 
the  Pennsylvania  Rock-Oil  Company,  the  first  in  the  United 
States,  and  leased  the  lands  on  which  these  oil  springs  were 
located.  He  then_sent  a  quantity  of  the  oil  to  Professor„Silli- 
man  of  Yale— College,  and  paid  him  for  analysing  it.  The 
professor's  regorijyas  published  and  received  general  atten- 
tion. From  the  rock-oil  might  be  made  as  good  an  illuminant 
as  any  the  world  knew.  It  also  yielded  gas,  paraffine,  lubri- 
cating oil.  "In  short,"  declared  Professor  Silliman,  "your 
company  have  in  their  possession  a  raw  material  from  which, 
by  simple  and  not  expensive  process,  they  may  manufacture 
very  valuable  products.  It  is  worthy  of  note  that  my  experi- 
ments prove  that  nearly  the  whole  of  the  raw  product  may 
be  manufactured  without  waste,  and  this  solely  by  a  well- 
directed  process  which  is  in  practice  in  one  of  the  most  simple 
of  all  chemical  processes."  * 

The  oil  was  valuable,  but  could  it  be  obtained  in  quanti- 
ties great  enough  to  make  the  development  of  so  remote  a 
locality  worth  while?  The  only  method  of  obtaining  it  known 
to  Mr.  Bissell  and  his  associates  in  the  new  company  was 
from  the  surface  of  oil  springs.  Could  it  be  obtained  in 
any  other  way?  There  has  long  been  a  story  current  in  the 
Oil  Regions  that  the  Pennsylvania  Rock-Oil  Company  re- 
ceived its  first  notion  of  drilling  for  oil  from  one  of  those 
trivial  incidents  which  so  often  turn  the  course  of  human 

Iffairs.  As  the  story  goes,  Mr.  Bissell  was  one  day  walking 
own  Broadway  when  he  halted  to  rest  in  the  shade  of  an 
*  See  Appendix,  Number  i.  Professor  Silliman's  report  on  petroleum. 
[7] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

awning  before  a  drug  store.  In  the  window  he  saw  on  a 
bottle  a  curious  label,  "Kier's  Petroleum,  or  Rock-Oil,"  it 
read,  "Celebrated  for  its  wonderful  curative  powers.  A 
natural  Remedy;  Produced  from  a  well  in  Allegheny  Co., 
Pa.,  four  hundred  feet  below  the  earth's  surface,"  etc.  On 
the  label  was  the  picture  of  an  artesian  well.  It  was  from 
this  well  that  Mr.  Kier  got  his  "Natural  Remedy."  Hun- 
dreds of  men  had  seen  the  label  before,  for  it  went  out  on 
every  one  of  Mr.  Kier's  circulars,  but  this  was  the  first  to 
look  at  it  with  a  "seeing  eye."  As  quickly  as  the  bottle  of 
rock-oil  in  the  Dartmouth  laboratory  had  awakened  in  Mr. 
Bissell's  mind  the  determination  to  find  out  the  real  value  of 
the  strange  substance,  the  label  gave  him  the  solution  of  the 
problem  of  getting  oil  in  quantities — it  was  to  bore  down 
into  the  earth  where  it  was  stored,  and  pump  it  up. 

Professor  Silliman  made  his  report  to  the  Pennsylvania 
Rock-Oil  Company  in  1855,  but  it  was  not  until  the  spring 
of  1858  that  a  representative  of  the  organisation,  which  by 
this  time  had  changed  hands  and  was  known  as  the  Seneca 
Oil  Company,  was  on  the  ground  with  orders  to  find  oil. 
The  man  sent  out  was  a  small  stockholder  in  the  company, 
Edwin  L.  Drake,  "Colonel"  Drake  as  he  was  called.  Drake 
had  had  no  experience  to  fit  him  for  his  task.  A  man  forty 
years  of  age,  he  had  spent  his  life  as  a  clerk,  an  express  agent, 
and  a  railway  conductor.  His  only  qualifications  were  a  dash 
of  pioneer  blood  and  a  great  persistency  in  undertakings 
which  interested  him.  Whether  Drake  came  to  Titusville 
ordered  to  put  down  an  artesian  well  or  not  is  a  mooted 
point.  His  latter-day  admirers  claim  that  the  idea  was  entirely 
his  own.  It  seems  hardly  credible  that  men  as  intelligent  as 
Professor  Silliman,  Mr.  Bissell,  and  others  interested  in  the 
Pennsylvania  Rock-Oil  Company,  should  not  have  taken 
means  of  finding  out  how  the  familiar  "Kier's  Rock-Oil" 
was  obtained.  Professor  Silliman  at  least  must  have  known 

[8] 


] 


7\ 


E.    L.    DRAKE 


In  1859  Drake  drilled  rear  Titusville,  Pennsylvania,  the  first  artesian  well  put  down  for 
petroleum.    He  is  popularly  said  to  have  "  discovered  oil." 


THE  BIRTH  OF  AN  INDUSTRY 

of  the  quantities  of  oil  which  had  been  obtained  in  different 
states  in  drilling  salt  wells;  indeed,  in  his  report  (see  Appen- 
dix, Number  i )  he  speaks  of  "wells  sunk  for  the  purpose  of 
accumulating  the  product."  In  the  "American  Journal  of  Sci- 
ence" for  1840 — of  which  he  was  one  of  the  editors — is  an  ac- 
count of  a  famous  oil  well  struck  near  Burkesville,  Kentucky, 
about  1830,  when  drilling  for  salt.  It  seems  probable  that  the 
idea  of  seeking  oil  on  the  lands  leased  by  the  Petroleum  Rock- 
Oil  Company  by  drilling  artesian  wells  had  been  long  dis- 
cussed by  the  gentlemen  interested  in  the  venture,  and  that 
Drake  came  to  Titusville  with  instructions  to  put  down  a 
well.  It  is  certain,  at  all  events,  that  he  was  soon  explaining 
to  his  superiors  at  home  the  difficulty  of  getting  a  driller,  an 
engine-house  and  tools,  and  that  he  was  employing  the  inter- 
val in  trying  to  open  new  oil  springs  and  make  the  old  ones 
more  profitable. 

The  task  before  Drake  was  no  light  one.  The  spot  to  which 
he  had  been  sent  was  Titusville,  a  lumberman's  hamlet  on 
Oil  Creek,  fourteen  miles  from  where  that  stream  joins  the 
Allegheny  River.  Its  chief  connection  with  the  outside  world 
was  by  a  stage  to  Erie,  forty  miles  away.  This  remoteness 
from  civilisation  and  Drake's  own  ignorance  of  artesian 
wells,  added  to  the  general  scepticism  of  the  community 
concerning  the  enterprise,  caused  great  difficulty  and  long 
delays.  It  was  months  before  Drake  succeeded  in  getting 
together  the  tools,  engine  and  rigging  necessary  to  bore  his 
well,  and  before  he  could  get  a  driller  who  knew  how  to 
manipulate  them,  winter  had  come,  and  he  had  to  suspend 
operations.  People  called  him  crazy  for  sticking  to  the  enter- 
rise,  but  that  had  no  effect  on  him.  As  soon  as  spring  opened 
borrowed  a  horse  and  wagon  and  drove  over  a  hundred 
miles  to  Tarentum,  where  Mr.  Kier  was  still  pumping  his 
salt  wells,  and  was  either  bottling  or  refining  the  oil  which 
came  up  with  the  brine.  Here  Drake  hoped  to  find  a  driller. 

[9] 


z 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
He  brought  back  a  man,  and  after  a  few  months  more  of 
experiments  and  accidents  the  drill  was  started.  One  day  late 
in  August,  1859,  Titusville  was  electrified  by  the  news  that 
Drake's  Folly,  as  many  of  the  onlookers  had  come  to  con- 
sider it,  had  justified  itself.  The  well  was  full  of  oil.  The 
next  day  a  pump  was  started,  and  twenty-five  barrels  of  oil 
were  gathered. 

There  was  no  doubt  of  the  meaning  of  the  Drake  well 
in  the  minds  of  the  people  of  the  vicinity.  They  had  long 
ago  accepted  all  Professor  Silliman  had  said  of  the  possibili- 
ties of  petroleum,  and  now  that  they  knew  how  it  could  be 
obtained  in  quantity,  the  whole  country-side  rushed  out  to 
obtain  leases.  The  second  well  in  the  immediate  region  was 
drilled  by  a  Titusville  tanner,  William  Barnsdall — an  Eng- 
lishman who  at  his  majority  had  come  to  America  to  make 
his  fortune.  He  had  fought  his  way  westward,  watching 
always  for  his  chance.  The  day  the  Drake  well  was  struck  he 
knew  it  had  come.  Quickly  forming  a  company  he  began  to 
drill  a  well.  He  did  not  wait  for  an  engine,  but  worked  his 
drill  through  the  rock  by  a  spring  pole.*  It  took  three  months, 
and  cost  $3,000  to  do  it,  but  he  had  his  reward.  On  February 
1,  i860,  he  struck  oil — twenty-five  barrels  a  day — and  oil  was 

*  An  elastic  pole  of  ash  or  hickory,  twelve  to  twenty  feet  long,  was  fastened  at 
one  end  to  work  over  a  fulcrum.  To  the  other  end  stirrups  were  attached,  or  a  tilt- 
ing platform  was  secured,  by  which  two  or  three  men  produced  a  jerking  motion 
that  drew  down  the  pole,  its  elasticity  pulling  it  back  with  sufficient  force,  when  the 
men  slackened  their  hold,  to  raise  the  tools  a  few  inches.  The  principle  resembled 
that  of  the  treadle-board  of  a  sewing  machine,  operating  which  moves  the  needle  up 
and  down.  The  tools  were  swung  in  the  driving  pipe,  or  the  "  conductor " — a 
wooden  tube  eight  or  ten  inches  square,  placed  endwise  in  a  hole  dug  to  the  rock — 
and  fixed  by  a  rope  to  the  spring  pole,  two  or  three  feet  from  the  workmen.  The 
strokes  were  rapid,  and  a  sand  pump— a  spout  three  inches  in  diameter,  with  a  hinged 
bottom  opening  inward  and  a  valve  working  on  a  sliding  rod,  somewhat  in  the :  j 
manner  of  a  syringe — removed  the  borings  mainly  by  sucking  them  into  the  spout  as 
it  was  drawn  out  quickly.     McLaurins  "  History  of  Petroleum" 

[10] 


THE  BIRTH  OF  AN  INDUSTRY 

selling  at  eighteen  dollars  a  barrel.  In  five  months  the  Eng- 
lish tanner  had  sold  over  $16,000  worth  of  oil. 

A  lumberman  and  merchant  of  the  village,  who  long  had 
had  faith  in  petroleum  if  it  could  be  had  in  quantity,  Jona- 
than Watson,  one  of  the  firm  of  Brewer,  Watson  and  Company, 
whose  land  the  Pennsylvania  Rock-Oil  Company  had  leased, 
mounted  his  horse  as  soon  as  he  heard  of  the  Drake  well,  and, 
riding  down  the  valley  of  Oil  Creek,  spent  the  day  in  leasing 
farms.  He  soon  had  the  third  well  of  the  region  going  down, 
this  too  by  a  spring  pole.  This  well  started  off  in  March  at 
sixty  gallons  a  minute,  and  oil  was  selling  at  sixty  cents  a 
gallon.  In  two  years  the  farm  where  this  third  well  was 
struck  had  produced  165,000  barrels  of  oil. 

Working  an  unfriendly  piece  of  land  a  few  miles  below 
the  Drake  well  lived  a  man  of  thirty-five.  Setting  out  for 
himself  at  twenty-two,  he  had  won  his  farm  by  the  most 
dogged  efforts,  working  in  saw-mills,  saving  his  earnings, 
buying  a  team,  working  it  for  others  until  he  could  take  up 
a  piece  of  land,  hoarding  his  savings  here.  For  what?  How 
could  he  know?  He  knew  well  enough  when  Drake  struck 
oil,  and  hastened  out  to  buy  a  share  in  a  two-acre  farm.  He 
sold  it  at  a  profit,  and  with  the  money  put  down  a  well,  from 
which  he  realised  $70,000.  A  few  years  later  the  farm  he 
had  slaved  to  win  came  into  the  field.  In  1871  he  refused  a 
million  dollars  for  it,  and  at  one  time  he  had  stored  there 
200,000  barrels  of  oil. 

A  young  doctor  who  had  buried  himself  in  the  wilderness 
saw  his  chance.  For  a  song  he  bought  thirty-eight  acres  on 
the  creek,  six  miles  below  the  Drake  well,  and  sold  half  of 
it  for  the  price  he  had  paid  to  a  country  storekeeper  and 
lumberman  of  the  vicinity,  one  Charles  Hyde.  Out  of  this 
thirty-eight  acres  millions  of  dollars  came;  one  well  alone — 

Ie  Mapleshade — cleared  one  and  one-half  millions. 
On  every  rocky  farm,   in  every  poor  settlement  of  the 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
region,  was  some  man  whose  ear  was  attuned  to  Fortune's 
call,  and  who  had  the  daring  and  the  energy  to  risk  every- 
thing he  possessed  in  an  oil  lease.  It  was  well  that  he  acted 
at  once;  for,  as  the  news  of  the  discovery  of  oil  reached  the 
open,  the  farms  and  towns  of  Ohio,  New  York,  and  Penn- 
sylvania poured  out  a  stream  of  ambitious  and  vigorous 
youths,  eager  to  seize  what  might  be  there  for  them,  while 
from  the  East  came  men  with  money  and  business  experience, 
who  formed  great  stock  companies,  took  up  lands  in  parcels 
of  thousands  of  acres,  and  put  down  wells  along  every  rocky 
run  and  creek,  as  well  as  over  the  steep  hills.  In  answer  to 
their  drill,  oil  poured  forth  in  floods.  In  many  places  pump- 
ing was  out  of  the  question;  the  wells  flowed  2,000,  3,000, 
4,000  barrels  a  day — such  quantities  of  it  that  at  the  close 
of  1 86 1  oil  which  in  January  of  i860  was  twenty  dollars  a 
barrel  had  fallen  to  ten  cents. 

Here  was  the  oil,  and  in  unheard-of  quantities,  and  with 
it  came  all  the  swarm  of  problems  which  a  discovery  brings. 
The  methods  Drake  had  used  were  crude  and  must  be  im- 
proved. The  processes  of  refining  were  those  of  the  laboratory 
and  must  be  developed.  Communication  with  the  outside 
world  must  be  secured.  Markets  must  be  built  up.  Indeed, 
a  whole  new  commercial  machine  had  to  be  created  to  meet 
the  discovery.  These  problems  were  not  realised  before  the 
region  teemed  with  men  to  wrestle  with  them — men  "alive 
to  the  instant  need  of  things."  They  had  to  begin  with  so 
simple  and  elementary  a  matter  as  devising  something  to 
hold  the  oil.  There  were  not  barrels  enough  to  be  bought 
in  America,  although  turpentine  barrels,  molasses  barrels, 
whiskey  barrels— every  sort  of  barrel  and  cask— were  added 
to  new  ones  made  especially  for  oil.  Reservoirs  excavated  in 
the  earth  and  faced  with  logs  and  cement,  and  box-like 
structures  of  planks  or  logs  were  tried  at  first  but  were  not 
satisfactory.  A  young  Iowa  school  teacher  and  farmer,  visit- 

[12] 


THE  BIRTH  OF  AN  INDUSTRY 

ing  at  his  home  in  Erie  County,  went  to  the  region.  Imme- 
diately he  saw  his  chance.  It  was  to  invent  a  receptacle  which 
would  hold  oil  in  quantities.  Certain  large  producers  listened 
to  his  scheme  and  furnished  money  to  make  a  trial  tank.  It 
was  a  success,  and  before  many  months  the  school-teacher 
was  buying  thousands  of  feet  of  lumber,  employing  scores 
of  men,  and  working  them  and  himself — day  and  night.  For 
nearly  ten  years  he  built  these  wooden  tanks.  Then  seeing 
that  iron  tanks — huge  receptacles  holding  thousands  of  bar- 
rels where  his  held  hundreds — were  bound  to  supersede  him, 
he  turned,  with  the  ready  adaptability  which  characterised 
the  men  of  the  region,  to  producing  oil  for  others  to  tank. 

After  the  storing  problem  came  that  of  transportation. 
There  was  one  waterway  leading  out — Oil  Creek,  as  it  had 
been  called  for  more  than  a  hundred  years, — an  uncertain 
stream  running  the  length  of  the  narrow  valley  in  which  the 
oil  was  found,  and  uniting  with  the  Allegheny  River  at  what 
is  now  known  as  Oil  City.  From  this  junction  it  was  132 
miles  to  Pittsburg  and  a  railroad.  Besides  this  waterway  were 
rough  country  roads  leading  to  the  railroads  at  Union  City, 
Corry,  Erie  and  Meadville.  There  was  but  one  way  to  get 
the  oil  to  the  bank  of  Oil  Creek  or  to  the  railroads,  and  that 
was  by  putting  it  into  barrels  and  hauling  it.  Teamsters 
equipped  for  this  service  seemed  to  fall  from  the  sky.  The 
farms  for  a  hundred  miles  around  gave  up  their  boys  and 
horses  and  wagons  to  supply  the  need.  It  paid.  There  were 
times  when  three  and  even  four  dollars  a  barrel  were  paid 
for  hauling  five  or  ten  miles.  It  was  not  too  much  for  the 
work.  The  best  roads  over  which  they  travelled  were  narrow, 
rough,  unmade  highways,  mere  openings  to  the  outer  world, 
while  the  roads  to  the  wells  they  themselves  had  to  break 
across  fields  and  through  forests.  These  roads  were  made 
almost  impassable  by  the  great  number  of  heavily  freighted 
wagons  travelling  over  them.  From  the  big  wells  a  constant 

[13] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
procession  of  teams  ran,  and  it  was  no  uncommon  thing  for 
a  visitor  to  the  Oil  Regions  to  meet  oil  caravans  of  a  hun- 
dred or  more  wagons.  Often  these  caravans  were  held  up  for 
hours  by  a  dangerous  mud-hole  into  which  a  wheel  had  sunk 
or  a  horse  fallen.  If  there  was  a  possible  way  to  be  made 
around  the  obstruction  it  was  taken,  even  if  it  led  through  a 
farmer's  field.  Indeed,  a  sort  of  guerilla  warfare  went  on 
constantly  between  the  farmers  and  the  teamsters.  Often  the 
roads  became  impassable,  so  that  new  ones  had  to  be  broken, 
and  not  even  a  shot-gun  could  keep  the  driver  from  going 
where  the  passage  was  least  difficult.  The  teamster,  in  fact, 
carried  a  weapon  which  few  farmers  cared  to  face,  his  ter- 
rible "black  snake,"  as  his  long,  heavy  black  whip  was  called. 
The  man  who  had  once  felt  the  cruel  lash  of  a  "black  snake" 
around  his  legs  did  not  often  oppose  the  owner. 

With  the  wages  paid  him  the  teamster  could  easily  become 
a  kind  of  plutocrat.  One  old  producer  tells  of  having  a 
teamster  in  his  employ  who  for  nine  weeks  drew  only  enough 
of  his  earnings  to  feed  himself  and  horses.  He  slept  in  his 
wagon  and  tethered  the  team.  At  the  end  of  the  time  he 
"thought  he'd  go  home  for  a  clean  shirt"  and  asked  for  a 
settlement.  It  was  found  that  he  had  $1,900  to  his  credit.  The 
story  is  a  fair  illustration  both  of  the  habits  and  the  earnings 
of  the  Oil  Creek  teamsters.  Indispensable  to  the  business  they 
became  the  tyrants  of  the  region — working  and  brawling  as 
suited  them,  a  genius  not  unlike  the  flatboat-men  who  once 
gave  colour  to  life  on  the  Mississippi,  or  the  cowboys  who 
make  the  plains  picturesque  to-day.  Bad  as  their  reputation 
was,  many  a  man  found  in  their  ranks  the  start  which  led  later 
to  wealth  and  influence  in  the  oil  business.  One  of  the  shrewd- 
est, kindest,  oddest  men  the  Oil  Regions  ever  knew,  Wesley 
Chambers,  came  to  the  top  from  the  teamster  class.  He  had 
found  his  way  to  the  creek  after  eight  years  of  unsuccessful 
gold-hunting  in  California.  "There's  my  chance,"  he  said, 

[14] 


THE  BIRTH  OF  AN  INDUSTRY 

when  he  saw  the  lack  of  teams  and  boats,  and  he  set  about 
organising  a  service  for  transporting  oil  to  Pittsburg.  In  a 
short  time  he  was  buying  horses  of  his  own  and  building 
boats.  Wide-awake  to  actualities,  he  saw  a  few  years  later  that 
the  teamster  and  the  boat  were  to  be  replaced  by  the  pipe- 
line and  the  railroad,  and  forestalled  the  change  by  becom- 
ing a  producer. 

In  this  problem  of  transportation  the  most  important  ele- 
ment after  the  team  was  Oil  Creek  and  the  flatboat.  A  more 
uncertain  stream  never  ran  in  a  bed.  In  the  summer  it  was 
low,  in  the  winter  frozen;  now  it  was  gorged  with  ice,  now 
running  mad  over  the  flats.  The  best  service  was  gotten  out 
of  it  in  time  of  low  water  through  artificial  freshets.  Mill- 
dams,  controlled  by  private  parties,  were  frequent  along  the 
creek  and  its  tributaries.  By  arrangement  these  dams  were 
cut  on  a  certain  day  or  days  of  the  week,  usually  Friday,  and 
on  the  flood  or  freshet  the  flatboats  loaded  with  barrels  of 
oil  were  floated  down  stream.  The  freshet  was  always  excit- 
ing and  perilous  and  frequently  disastrous.  From  the  points 
where  they  were  tied  up  the  boatmen  watched  the  coming 
flood  and  cut  themselves  loose  the  moment  after  its  head  had 
passed  them.  As  one  fleet  after  another  swung  into  the  roar- 
ing flood  the  danger  of  collision  and  jams  increased.  Rare 
indeed  was  the  freshet  when  a  few  wrecks  did  not  lie  some- 
where along  the  creek,  and  often  scores  lay  piled  high  on 
the  bank — a  hopeless  jam  of  broken  boats  and  barrels,  the 
whole  soaked  in  petroleum  and  reeking  with  gas  and  pro- 
fanity. If  the  boats  rode  safely  through  to  the  river,  there  was 
little  further  danger. 

The  Allegheny  River  traffic  grew  to  great  proportions — 
fully  1,000  boats  and  some  thirty  steamers  were  in  the  fleet, 
and  at  least  4,000  men.  This  traffic  was  developed  by  men 

tho  saw  here  their  opportunity  of  fortune,  as  others  had 
en  it  in  drilling  or  teaming.  The  foremost  of  these  men 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
was  an  Ohio  River  captain,  driven  northward  by  the  war, 
one  J.  J.  Vandergrift.  Captain  Vandergrift  had  run  the  full 
gamut  of  river  experiences  from  cabin-boy  to  owner  and 
commander  of  his  own  steamers.  The  war  stopped  his  Mis- 
sissippi River  trade.  Fitting  up  one  of  his  steamers  as  a 
gun-boat,  he  turned  it  over  to  Commodore  Foote  and  looked 
for  a  new  stream  to  navigate.  From  the  Oil  Region  at  that 
moment  the  loudest  cry  was  for  barrels.  He  towed  4,000 
empty  casks  up  the  river,  saw  at  once  the  need  of  some  kind 
of  bulk  transportation,  took  his  hint  from  a  bulk-boat  which 
an  ingenious  experimenter  was  trying,  ordered  a  dozen  of 
them  built,  towed  his  fleet  to  the  creek,  bought  oil  to  fill 
them,  and  then  returned  to  Pittsburg  to  sell  his  cargo.  On 
one  alone  he  made  $70,000. 

But  the  railroad  soon  pressed  the  river  hard.  At  the  time 
of  the  discovery  of  oil  three  lines,  the  Philadelphia  and  Erie, 
the  Buffalo  and  Erie  (now  the  Lake  Shore),  connecting  with 
the  Central,  and  the  Atlantic  and  Great  Western,  connecting 
with  the  Erie,  were  within  teaming  distance  of  the  region. 
The  points  at  which  the  Philadelphia  and  Erie  road  could 
be  reached  were  Erie,  forty  miles  from  Titusville,  Union 
City,  twenty-two  miles,  and  Corry,  sixteen  miles.  The  Buf- 
falo and  Erie  was  reached  at  Erie.  The  Atlantic  and  Great 
Western  was  reached  at  Meadville,  Union  City  and  Corry, 
and  the  distances  were  twenty-eight,  twenty-two  and  sixteen 
miles,  respectively.  Erie  was  the  favourite  shipping  point  at 
first,  as  the  wagon  road  in  that  direction  was  the  best.  The 
amount  of  freight  the  railroads  carried  the  first  year  of  the 
business  was  enormous.  Of  course  connecting  lines  were  built 
as  rapidly  as  men  could  work.  By  the  beginning  of  1863  tne 
Oil  Creek  road,  as  it  was  known,  had  reached  Titusville  from 
Corry.  This  gave  an  eastern  connection  by  both  the  Phila- 
delphia and  Erie  and  the  Atlantic  and  Great  Western,  but 
as  the  latter  was  constructing  a  branch  from  Meadville  to 

[16] 


THE  BIRTH  OF  AN  INDUSTRY 

Franklin,  the  Oil  Creek  road  became  the  feeder  of  the  for- 
mer principally.  Both  of  these  roads  were  completed  to  Oil 
City  by  1865. 

The  railroads  built,  the  vexatious,  time-taking,  and  costly 
problem  of  getting  the  oil  from  the  well  to  the  shipping 
point  still  remained.  The  teamster  was  still  the  tyrant  of  the 
business.  His  day  was  almost  over.  He  was  to  fall  before  the 
pipe-line.  The  feasibility  of  carrying  oil  in  pipes  was  dis- 
cussed almost  from  the  beginning  of  the  oil  business.  Very 
soon  after  the  Drake  well  was  struck  oil  men  began  to  say 
that  the  natural  way  to  get  this  oil  from  the  wells  to  the  rail- 
roads was  through  pipes.  In  many  places  gravity  would 
carry  it;  where  it  could  not,  pumps  would  force  it.  The  belief 
that  this  could  be  done  was  so  strong  that  as  early  as  Febru- 
ary, 1862,  a  company  was  incorporated  in  Pennsylvania  for 
carrying  oil  in  pipes  or  tubes  from  any  point  on  Oil  Creek 
to  its  mouth  or  to  any  station  on  the  Philadelphia  and  Erie 
Railroad.  This  company  seems  never  to  have  done  more  than 
get  a  charter.  In  1863  at  least  three  short  pipe-lines  were  put 
into  operation.  The  first  of  these  was  a  two-inch  pipe,  through 
which  distillate  was  pumped  a  distance  of  three  miles  from 
the  Warren  refinery  at  Plumer  to  Warren's  Landing  on  the 
Allegheny  River.  The  one  which  attracted  the  most  attention 
was  a  line  two  and  one-half  miles  in  length  carrying  crude 
oil  from  the  Tarr  farm  to  the  Humboldt  refinery  at  Plumer. 
Various  other  experiments  were  made,  both  gravity  and 
pumps  being  trusted  for  propelling  the  oil,  but  there  was 
always  something  wrong;  the  pipes  leaked  or  burst,  the 
pumps  were  too  weak;  shifting  oil  centres  interrupted  experi- 
ments which  might  have  been  successful.  Then  suddenly  the 
man  for  the  need  appeared,  Samuel  Van  Syckel.  He  came 
to  the  creek  in  1864  with  some  money,  hoping  to  make  more. 
He  handled  quantities  of  oil  produced  at  Pithole,  several 
miles  from  a  shipping  point,  and  saw  his  profits  eaten  up 

[17] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

by  teamsters.  Their  tyranny  aroused  his  ire  and  his  wits  and 
he  determined  to  build  a  pipe-line  from  the  wells  to  the  rail- 
road. He  was  greeted  with  jeers,  but  he  went  doggedly  ahead, 
laid  a  two-inch  pipe,  put  in  three  relay  pumps,  and  turned 
in  his  oil.  From  the  start  the  line  was  a  success,  carrying 
eighty  barrels  of  oil  an  hour.  The  day  that  the  Van  Syckel 
pipe-line  began  to  run  oil  a  revolution  began  in  the  business. 
After  the  Drake  well  it  is  the  most  important  event  in  the 
history  of  the  Oil  Regions. 

The  teamsters  saw  its  meaning  first  and  turned  out  in  fury, 
dragging  the  pipe,  which  was  for  the  most  part  buried,  to  the 
surface,  and  cutting  it  so  that  the  oil  would  be  lost.  It  was 
only  by  stationing  an  armed  guard  that  they  were  held  in 
check.  A  second  line  of  importance,  that  of  Abbott  and 
Harley,  suffered  even  more  than  that  of  Van  Syckel.  The 
teamsters  did  more  than  cut  the  pipe;  they  burned  the  tanks 
in  which  oil  was  stored,  laid  in  wait  for  employees,  threatened 
with  destruction  the  wells  which  furnished  the  oil,  and  so 
generally  terrorised  the  country  that  the  governor  of  the 
state  was  called  upon  in  April,  1866,  to  protect  the  property 
and  men  of  the  lines.  The  day  of  the  teamster  was  over, 
however,  and  the  more  philosophical  of  them  accepted  the 
situation;  scores  disappeared  from  the  region,  and  scores  more 
took  to  drilling.  They  died  hard,  and  the  cutting  and  plug- 
ging of  pipe-lines  was  for  years  a  pastime  of  the  remnant  of 
their  race. 

If  the  uses  to  which  oil  might  be  put  and  the  methods  for 
manufacturing  it  had  not  been  well  understood  when  the 
Drake  well  was  struck,  there  would  have  been  no  such  impe- 
rious demand  as  came  for  the  immediate  opening  of  new 
territory  and  developing  methods  of  handling  and  carrying 
it  on  a  large  scale.  But  men  knew  already  what  the  oil 
was  good  for,  and,  in  a  crude  way,  how  to  distil  it. 
The  process  of  distillation  also  was  free  to  all.  The  essential 

[18] 


THE  BIRTH  OF  AN  INDUSTRY 

apparatus  was  very  simple — a  cast-iron  still,  usually  sur- 
rounded by  brick-work,  a  copper  worm,  and  two  tin-  or  zinc- 
lined  tanks.  The  still  was  filled  with  crude  oil,  which  was 
subjected  to  a  high  enough  heat  to  vapourise  it.  The  vapour 
passed  through  a  cast-iron  goose-neck  fitted  to  the  top  of  the 
still  into  the  copper  worm,  which  was  immersed  in  water. 
Here  the  vapour  was  condensed  and  passed  into  the  zinc-lined 
tank.  This  product,  called  a  distillate,  was  treated  with 
chemicals,  washed  with  water,  and  run  off  into  the  tin-lined 
tank,  where  it  was  allowed  to  settle.  Anybody  who  could  get 
the  apparatus  could  "make  oil,"  and  many  men  did — badly, 
of  course,  to  begin  with,  and  with  an  alarming  proportion  of 
waste  and  explosions  and  fires,  but  with  experience  they 
learned,  and  some  of  the  great  refineries  of  the  country  grew 
out  of  these  rude  beginnings. 

Luckily  not  all  the  men  who  undertook  the  manufacturing 
of  petroleum  in  these  first  days  were  inexperienced.  The 
chemists  to  whom  are  due  chiefly  the  processes  now  used — 
Atwood,  Gessner,  and  Merrill — had  for  years  been  busy  mak- 
ing oils  from  coal.  They  knew  something  of  petroleum,  and 
when  it  came  in  quantities  began  at  once  to  adapt  their 
processes  to  it.  Merrill  at  the  time  was  connected  with  Samuel 
Downer,  of  Boston,  in  manufacturing  oil  from  Trinidad  pitch 
and  from  coal  bought  in  Newfoundland.  The  year  oil  was  dis- 
:overed  Mr.  Downer  distilled  7,500  tons  of  this  coal,  clear- 
ing on  it  at  least  $100,000.  As  soon  as  petroleum  appeared 
le  and  Mr.  Merrill  saw  that  here  was  a  product  which  was 
Dound  to  displace  their  coal,  and  with  courage  and  prompt- 
less  they  prepared  to  adapt  their  works.  In  order  to  be  near 
:he  supply  they  came  to  Corry,  fourteen  miles  from  the  Drake 
veil,  and  in  1862  put  up  a  refinery  which  cost  $250,000.  Here 
vere  refined  thousands  of  barrels  of  oil,  most  of  which  was 
sent  to  New  York  for  export.  To  the  Boston  works  the  firm 
sent  crude,  which  was  manufactured  for  the  home  trade  and 

[  19  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

for  shipping  to  California  and  Australia.  The  processes  used 
in  the  Downer  works  at  this  early  day  were  in  all  essentials 
the  same  as  are  used  to-day. 

In  1865  William  Wright,  after  a  careful  study  of 
"Petrolia,"  as  the  Oil  Regions  were  then  often  called,  pub- 
lished with  Harper  and  Brothers  an  interesting  volume  in 
which  he  devotes  a  chapter  to  "Oil  Refining  and  Refiners." 
Mr.  Wright  describes  there  not  only  the  Downer  works  at 
Corry,  but  a  factory  which  if  much  less  important  in  the 
development  of  the  Oil  Regions  held  a  much  larger  place 
in  its  imagination.  This  was  the  Humboldt  works  at  Plumer. 
In  1862  two  Germans,  brothers,  the  Messrs.  Ludovici, 
came  to  the  oil  country  and,  choosing  a  spot  distant  from 
oil  wells,  main  roads,  or  water  courses,  erected  an  oil  refin- 
ery which  was  reported  to  have  cost  a  half  million  dollars. 
The  works  were  built  in  a  way  unheard  of  then  and  uncom- 
mon now.  The  foundations  were  all  of  cut  stone.  The  boiler 
and  engines  were  of  the  most  expensive  character.  A  house 
erected  in  connection  with  the  refinery  was  said  to  have 
been  finished  in  hard  wood  with  marble  mantels,  and  fur- 
nished with  rich  carpets,  mirrors,  and  elaborate  furniture. 
The  lavishness  of  the  Humboldt  refinery  and  the  formality 
with  which  its  business  was  conducted  were  long  a  tradition  in 
the  Oil  Regions.  Of  more  practical  moment  are  the  features  of 
the  refinery  which  Mr.  Wright  mentions:  one  is  that  the 
works  had  been  so  planned  as  to  take  advantage  of  the  natural 
descent  of  the  ground  so  that  the  oil  would  pass  from  one 
set  of  vessels  to  another  without  using  artificial  power,  and  the 
other  that  the  supply  of  crude  oil  was  obtained  from  the 
Tarr  farm  three  miles  away,  being  forced  by  pumps,  through 
pipes,  over  the  hills. 

Mr.  Wright  found  some  twenty  refineries  between  Titus- 
ville  and  Oil  City  the  year  of  his  visit,  1865.  In  several  facto- 
ries that  he  visited  they  were  making  naphtha,  gasoline,  and 

[20] 


THE  BIRTH  OF  AN  INDUSTRY 

benzine  for  export.  Three  grades  of  illuminating  oils — "prime 
white,"  "standard  white,"  and  "straw  colour" — were  made 
everywhere;  paraffine,  refined  to  a  pure  white  article  like 
that  of  to-day,  was  manufactured  in  quantities  by  the  Downer 
works;  and  lubricating  oils  were  beginning  to  be  made. 

As  men  and  means  were  found  to  put  down  wells,  to  devise 
and  build  tanks  and  boats  and  pipes  and  railroads  for  handling 
the  oil,  to  adapt  and  improve  processes  for  manufacturing, 
so  men  were  found  from  the  beginning  of  the  oil  business 
to  wrestle  with  every  problem  raised.  They  came  in  shoals, 
young,  vigorous,  resourceful,  indifferent  to  difficulties,  greedy 
for  a  chance,  and  with  each  year  they  forced  more  light  and 
wealth  from  the  new  product.  By  the  opening  of  1872  they 
had  produced  nearly  40,000,000  barrels  of  oil,  and  had  raised 
their  produc_LlCLJJie.-iQuxth„  place  amaag,.the  expoxtsi-aLthe 
United  States,  over  152,000,000  gallons  going  abroad  in  1871, 
a  percentage  of  the  production  which  compares  well  with 
what  goes  to-day.*  As  for  the  market,  they  had  developed 
it  until  it  included  almost  every  country  of  the  earth — China, 
the  East  and  West  Indies,  South  America  and  Africa.  Over 
forty  different  European  ports  received  refined  oil  from  the 
United  States  in  1871.  Nearly  a  million  gallons  were  sent 
to  Syria,  about  a  half  million  to  Egypt,  about  as  much  to  the 
British  West  Indies,  and  a  quarter  of  a  million  to  the  Dutch 
East  Indies.  Not  only  were  illuminating  oils  being  exported. 
In  1 871  nearly  seven  million  gallons  of  naphtha,  benzine,  and 
gasoline  were  sent  abroad,  and  it  became  evident  now  for 
the  first  time  that  a  valuable  trade  in  lubricants  made  from 
petroleum  was  possible.  A  discovery  by  Joshua  Merrill  of  the 
Downer  works  opened  this  new  source  of  wealth  to  the  indus- 
try. Until  1869  the  impossibility  of  deodorising  petroleum 
had  prevented  its  use  largely  as  a  lubricant,  but  in  that  year 

*  In  1871  the  petroleum  export*?  were  152,195,167  gallons.  The  production  was 
5,795,000  barrels,  or  243,390,000  gallons. 

[  21  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Mr.  Merrill  discovered  a  process  by  which  a  deodorised 
lubricating  oil  could  be  made.  He  had  both  the  apparatus 
for  producing  the  oil  and  the  oil  itself  patented.  The  oil  was 
so  favourably  received  that  the  market  sale  by  the  Downer 
works  was  several  hundred  per  cent,  greater  in  a  single  year 
than  the  firm  had  ever  sold  before. 

The  oil  field  had  been  extended  from  the  valley  of  Oil 
Creek  and  its  tributaries  down  the  Allegheny  River  for  fifty 
miles  and  probably  covered  2,000  square  miles.  The  early 
theory  that  oil  followed  the  streams  had  been  exploded,  and 
wells  were  now  drilled  on  the  hills.  It  was  known,  too,  that  if 
oil  was  found  in  the  first  sand  struck  in  the  drilling,  it 
might  be  found  still  lower  in  a  second  or  third  sand.  The 
Drake  well  had  struck  oil  at  69%  feet,  but  wells  were  now 
drilled  as  deep  as  1,600  feet.  The  extension  of  the  field,  the 
discovery  that  oil  was  under  the  hills  as  well  as  under  streams, 
and  to  be  found  in  various  sands,  had  cost  enormously.  It  had 
been  done  by  "wild-catting,"  as  putting  down  experimental 
wells  was  called,  by  following  superstitions  in  locating  wells, 
such  as  the  witch-hazel  stick,  or  the  spiritualistic  medium, 
quite  as  much  as  by  studying  the  position  of  wells  in  existence 
and  calculating  how  oil  belts  probably  ran.  As  the  cost  of  a 
well  was  from  $3,000  to  $8,000,*  according  to  its  location,  and 
as  4,374  of  the  5,560  wells  drilled  in  the  first  ten  years  of  the 
business  (1859  t0  l%(>9)  were  "dry-holes,"  or  were  abandoned 
as  unprofitable,  something  of  the  daring  it  took  to  operate  on 
small  means,  as  most  producers  did  in  the  beginning,  is  evi- 
dent. But  they  loved  the  game,  and  every  man  of  them  would; 
stake  his  last  dollar  on  the  chance  of  striking  oil. 

With  the  extension  of  the  field  rapid  strides  had  been  made 
in  tools,  in  rigs,  in  all  of  the  various  essentials  of  drilling  a 
well.  They  had  learned  to  use  torpedoes  to  open  up  hard  rocks, 

*  Estimate  of  J.  T.  Henry  in  his  "  Early  and  Later  History  of  Petroleum,"  1873. 
The  "  Petroleum  Monthly"  in  1873  estimated  the  cost  to  be  from  $2,725  to  $4,416. 

[22] 


THE  BIRTH  OF  AN  INDUSTRY 

naphtha  to  cut  the  paraffine  which  coated  the  sand  and  stopped 
the  flow  of  oil,  seed  bags  to  stop  the  inrush  of  a  stream  of 
water.  They  lost  their  tools  less  often,  and  knew  better  how 
to  fish  for  them  when  they  did.  In  short,  they  had  learned 
how  to  put  down  and  care  for  oil  wells. 

Equal  advances  had  been  made  in  other  departments,  fewer 
cars  were  loaded  with  barrels,  tank  cars  for  carrying  in  bulk 
had  been  invented.  The  wooden  tank  holding  200  to  1,200 
barrels  had  been  rapidly  replaced  by  the  great  iron  tank 
holding  20,000  or  30,000  barrels.  The  pipe-lines  had  begun 
to  go  directly  to  the  wells  instead  of  pumping  from  a  general 
receiving  station,  or  "dump,"  as  it  was  called,  thus  saving 
the  tedious  and  expensive  operation  of  hauling.  From  begin- 
ning to  end  the  business  had  been  developed,  systematised, 
simplified. 

Most  important  was  the  simplification  of  the  transporta- 
tion problem  by  the  development  of  pipe-lines.  By  1872  they 
were  the  one  oil  gatherer.  Several  companies  were  carrying 
on  the  pipe-line  business,  and  two  of  them  had  acquired  great 
power  in  the  Oil  Regions  because  of  their  connection  with 
trunk  lines.  These  were  the  Empire  Transportation  Company 
and  the  Pennsylvania  Transportation  Company.  The  former, 
which  had  been  the  first  business  organisation  to  go  into  the 
pipe-line  business  on  a  large  scale,  was  a  concern  which  had 
appeared  in  the  Oil  Regions  not  over  six  months  before  Van 
Syckel  began  to  pump  oil.  The  Empire  Transportation  Com- 
pany had  been  organised  in  1865  t0  build  up  an  east  and 
west  freight  traffic  via  the  Philadelphia  and  Erie  Railroad, 
a  new  line  which  had  just  been  leased  by  the  Pennsylvania. 
Some  ten  railroads  connected  in  one  way  or  another  with 
the  Philadelphia  and  Erie,  forming  direct  routes  east  and 

I  west.  In  spite  of  their  evident  community  of  interest  these 
various  roads  were  kept  apart  by  their  jealous  fears  of  one 
another.  Each  insisted  on  its  own  time-table,  its  own  rates, 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

its  own  way  of  doing  things.  The  shipper  via  this  route  must 
make  a  separate  bargain  with  each  road  and  often  submit  to 
having  his  freight  changed  at  terminals  from  one  car  to  an- 
other because  of  the  difference  of  gauge.  The  Empire  Trans- 
portation Company  undertook  to  act  as  a  mediator  between  the 
roads  and  the  shipper,  to  make  the  route  cheap,  fast,  and  reli- 
able. It  proposed  to  solicit  freight,  furnish  its  own  cars  and 
terminal  facilities,  and  collect  money  due.  It  did  not  make 
rates,  however;  it  only  harmonised  those  made  by  the  various 
branches  in  the  system.  It  was  to  receive  a  commission  on  the 
business  secured,  and  a  rental  for  the  cars  and  other  facilities 
it  furnished. 

It  was  a  difficult  task  the  new  company  undertook,  but 
it  had  at  its  head  a  remarkable  man  to  cope  with  difficulties. 
This  man,  Joseph  D.  Potts,  was  in  1865  thirty-six  years  old. 
He  had  come  of  a  long  and  honourable  line  of  iron-masters  of 
the  Schuylkill  region  of  Pennsylvania,  but  had  left  the  great 
forge  towns  with  which  his  ancestors  had  been  associated — 
Pottstown,  Glasgow  Forge,  Valley  Forge — to  become  a  civil 
engineer.  His  profession  had  led  him  to  the  service  of  the 
Pennsylvania  Railroad,  where  he  had  held  important  positions 
in  connection  with  which  he  now  undertook  the  organisation 
of  the  Empire  Transportation  Company.  Colonel  Potts — 
the  title  came  from  his  service  in  the  Civil  War — possessed 
a  clear  and  vigorous  mind;  he  was  far-seeing,  forceful  in 
execution,  fair  in  his  dealings.  To  marked  ability  and  integrity 
he  joined  a  gentle  and  courteous  nature. 

The  first  freight  which  the  Empire  Transportation  Com- 
pany attacked  after  its  organisation  was  oil.  The  year  was 
a  great  one  for  the  Oil  Regions,  the  year  of  Pithole.  In  January 
there  had  suddenly  been  struck  on  Pithole  Creek  in  a  wilder- 
ness six  miles  from  the  Allegheny  River  a  well,  located  with 
a  witch-hazel  twig,  which  produced  250  barrels  a  day — and 
oil  was  selling  at  eight  dollars  a  barrel!  Wells  followed  in 

[24] 


THE  BIRTH  OF  AN  INDUSTRY 

rapid  succession.  In  less  than  ten  months  the  field  was  doing 
over  10,000  barrels  a  day.  This  sudden  flood  of  oil  caused  a 
tremendous  excitement.  Crowds  of  speculators  and  investors 
rushed  to  Pithole  from  all  over  the  country.  The  Civil  War 
had  just  closed,  soldiers  were  disbanding,  and  hundreds  of 
them  found  their  way  to  the  new  oil  field.  In  six  weeks  after 
the  first  well  was  struck  Pithole  was  a  town  of  6,000  inhab- 
itants. In  less  than  a  year  it  had  fifty  hotels  and  boarding- 
houses;  five  of  these  hotels  cost  $50,000  or  more  each.  In  six 
months  after  the  first  well  the  post-office  of  Pithole  was  receiv- 
ing upwards  of  10,000  letters  per  day  and  was  counted  third 
in  size  in  the  state — Philadelphia,  Pittsburg,  and  Pithole  being 
the  order  of  rank.  It  had  a  daily  paper,  churches,  all  the  appli- 
ances of  a  town. 

The  handling  of  the  great  output  of  oil  from  the  Pithole 
field  was  a  serious  question.  There  seemed  not  enough  cars 
in  the  country  to  carry  it  and  shippers  resorted  to  every  imag- 
inable trick  to  get  accommodations.  When  the  agent  of  the 
Empire  Transportation  Company  opened  his  office  in  June, 
1865,  and  demonstrated  his  ability  to  furnish  cars  regularly 
and  in  large  numbers,  trade  rapidly  flowed  to  him.  Now  the 
Empire  agency  had  hardly  been  established  when  the  Van 
Syckel  pipe-line  began  to  carry  oil  from  Pithole  to  the  rail- 
road. Lines  began  to  multiply.  The  railroads  saw  at  once 
that  they  were  destined  speedily  to  do  all  the  gathering  and 
hastened  to  secure  control  of  them.  Colonel  Potts's  first  pipe- 
line purchase  was  a  line  running  from  Pithole  to  Titusville, 
which  as  yet  had  not  been  wet. 

When  the  Empire  Transportation  Company  took  over  this 
line  nothing  had  been  demonstrated  but  that  oil  could  be 
driven,  by  relay  pumps,  five  miles  through  a  two-inch  pipe. 
The  Empire's  first  effort  was  to  get  a  longer  run  by  fewer 
pumps.  The  agent  in  charge,  C.  P.  Hatch,  believed  that  oil 
could  be  brought  the  entire  ten  and  one-half  miles  from  Pit- 

[25] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

hole  to  Titusville  by  one  pump.  He  met  with  ridicule,  but  he 
insisted  on  trying  it  in  the  new  line  his  company  had  acquired. 
The  experiment  was  entirely  successful.  Improvements  fol- 
lowed as  rapidly  as  hands  could  carry  out  the  suggestions  of 
ingenuity  and  energy.  One  of  the  most  important  made  the 
first  year  of  the  business  was  connecting  wells  by  pipe  directly 
with  the  tanks  at  the  pumping  stations,  thus  doing  away  with 
the  expensive  hauling  in  barrels  to  the  "dump."  A  new  device 
for  accounting  to  the  producer  for  his  oil  was  made  necessary 
by  this  change,  and  the  practice  of  taking  the  gauge  or  meas- 
ure of  the  oil  in  the  producer's  tank  before  and  after  the  run 
and  issuing  duplicate  "run  tickets"  was  devised  by  Mr. 
Hatch.  The  producers,  however,  were  not  all  "square";  it 
sometimes  happened  that  they  sold  oil  by  a  transfer  order  on 
the  pipe-line,  which  they  did  not  have  in  the  line!  To  prevent 
these  the  Empire  Transportation  Company  in  1868  began  to 
issue  certificates  for  credit  balances  of  oil ;  these  soon  became 
the  general  mediums  of  trade  in  oil,  and  remain  so  to-day. 

One  of  the  cleverest  of  the  pipe-line  devices  of  the  Empire 
Company  was  its  assessment  for  waste  and  fire.  In  running 
oil  through  pipes  there  is  more  or  less  lost  by  leaking  and , 
evaporation.  In  September,  1868,  Mr.  Hatch  announced  that  | 
thereafter  he  would  deduct  two  per  cent,  from  oil  runs  for  |! 
wastage.  The  assessment  raised  almost  a  riot  in  the  region,!! 
meetings  were  held,  the  Empire  Transportation  Company  was  I 
denounced  as  a  highway  robber,  and  threats  of  violence  were 
made  if  the  order  was  enforced.  While  this  excitement  was  in  | 
progress  there  came  a  big  fire  on  the  line.  Now  the  company's 
officials  had  been  studying  the  question  of  fire  insurance  from 
the  start.  Fires  in  the  Oil  Regions  were  as  regular  a  feature  of; 
the  business  as  explosions  used  to  be  on  the  Mississippi  steam- 
boats, and  no  regular  fire  insurance  company  would  take  the: 
risk.  It  had  been  decided  that  at  the  first  fire  there  should  be 
announced  what  was  called  a  "general  average  assessment,"! 

[26] 


THE  BIRTH  OF  AN  INDUSTRY 

that  is,  a  fire  tax,  and  to  be  ready,  blanks  had  been  prepared. 
Now  in  the  thick  of  the  resistance  to  the  wastage  assessment 
came  a  fire  and  the  line  announced  that  the  producers  having 
oil  in  the  line  must  pay  the  insurance.  The  controversy  at  once 
waxed  hotter  than  ever,  but  was  finally  compromised  by  the 
withdrawal  in  this  case  of  the  fire  insurance  if  the  producers 
would  consent  to  the  tax  for  waste.  They  did  consent,  and 
later  when  fires  occurred  the  general  average  assessment  was 
applied  without  serious  opposition.  Both  of  these  practices 
prevail  to-day.  By  the  end  of  1871  the  Empire  Transportation 
Company  was  one  of  the  most  efficient  and  respected  business 
organisations  in  the  oil  country. 

Its  chief  rival  was  the  Pennsylvania  Transportation  Com- 
pany, an  organisation  which  had  its  origin  in  the  second  pipe- 
line laid  in  the  Oil  Regions.  This  line  was  built  by  Henry 
Harley,  a  man  who  for  fully  ten  years  was  one  of  the  most 
brilliant  figures  in  the  oil  country.  Harley  was  a  civil  engineer 
tyy  profession,  a  graduate  of  the  Troy  Polytechnic  Institute, 
and  had  held  a  responsible  position  for  some  time  as  an  assist- 
ant of  General  Herman  Haupt  in  the  Hoosac  Tunnel.  He 
became  interested  in  the  oil  business  in  1862,  first  as  a  buyer 
of  petroleum,  then  as  an  operator  in  West  Virginia.  In  1865 
he  laid  a  pipe-line  from  one  of  the  rich  oil  farms  of  the  creek 
to  the  railroad.  It  was  a  success,  and  from  this  venture  Harley 
and  his  partner,  W.  H.  Abbott,  one  of  the  wealthiest  and 
most  active  men  in  the  country,  developed  an  important  trans- 
portation system.  In  1868  Jay  Gould,  who  as  president  of  the 
Erie  road  was  eager  to  increase  his  oil  freight,  bought  a 
controlling  interest  in  the  Abbott  and  Ha rl ey  lines,  and  made 
Harley  "General  Oil  Agent"  of  the  Erie  system.  Harley  now 
became  closely  associated  with  Fisk  and  Gould,  and  the  three 
carried  on  a  series  of  bold  and  piratical  speculations  in  oil 
which  greatly  enraged  the  oil  country.  They  built  a  refinery 
near  Jersey  City,  extended  their  pipe-line  system,  and  in  1871, 

[27] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
when  they  reorganised  under  the  name  of  the  Pennsylvania 
Transportation  Company,  they  controlled  probably  the  great- 
est number  of  miles  of  pipe  of  any  company  in  the  region, 
and  then  were  righting  the  Empire  bitterly  for  freight. 

There  is  no  part  of  this  rapid  development  of  the  business 
more  interesting  than  the  commercial  machine  the  oil  men 
had  devised  by  1872  for  marketing  oil.  A  man  with  a 
thousand-barrel  well  on  his  hands  in  1862  was  in  a  plight.  He 
had  got  to  sell  his  oil  at  once  for  lack  of  storage  room  or 
let  it  run  on  the  ground,  and  there  was  no  exchange,  no 
market,  no  telegraph,  not  even  a  post-office  within  his  reach 
where  he  could  arrange  a  sale.  He  had  to  depend  on  buyers 
who  came  to  him.  These  buyers  were  the  agents  of  the  refin- 
eries in  different  cities,  or  of  the  exporters  of  crude  in  New 
York.  They  went  from  well  to  well  on  horseback,  if  the 
roads  were  not  too  bad,  on  foot  if  they  were,  and  at  each 
place  made  a  special  bargain  varying  with  the  quantity  bought 
and  the  difficulty  in  getting  it  away,  for  the  buyer  was  the 
transporter,  and,  as  a  rule,  furnished  the  barrels  or  boats  in 
which  he  carried  off  his  oil.  It  was  not  long  before  the  specu- 
lative character  of  the  oil  trade  due  to  the  great  fluctuations 
in  quantity  added  a  crowd  of  brokers  to  the  regular  buyers 
who  tramped  up  and  down  the  creek.  When  the  railroads 
came  in  the  trains  became  the  headquarters  for  both  buyers 
and  sellers.  This  was  the  more  easily  managed  as  the  trains  on 
the  creek  stopped  at  almost  every  oil  farm.  These  trains 
became,  in  fact,  a  sort  of  travelling  oil  exchange,  and  on  them 
a  large  percentage  of  all  the  bargaining  of  the  business  was 
done. 

The  brokers  and  buyers  first  organised  and  established 
headquarters  in  Oil  City  in  1869,  but  there  was  an  oil  exchange 
in  New  York  City  as  early  as  1866.  Titusville  did  not  have 
an  exchange  until  1871.  By  this  time  the  pipe-lines  had  begun 
to  issue  certificates  for  the  oil  they  received,  and  the  trading 

[28] 


THE  BIRTH  OF  AN  INDUSTRY 

was  done  to  a  degree  in  these.  The  method  was  simple,  and 
much  more  convenient  than  the  old  one.  The  producer  ran 
his  oil  into  a  pipe-line,  and  for  it  received  a  certificate  show- 
ing that  the  line  held  so  much  to  his  credit;  this  certificate 
was  transferred  when  the  sale  was  made  and  presented  when 
the  oil  was  wanted. 

One  achievement  of  which  the  oil  men  were  particularly 
proud  was  increasing  the  refining  capacity  of  the  region.  At 
the  start  the  difficulty  of  getting  the  apparatus  for  a  refinery 
to  the  creek  had  been  so  enormous  that  the  bulk  of  the  crude 
had  been  driven  to  the  nearest  manufacturing  cities — Erie, 
Pittsburgh  Cleveland.  Much  had  gone  to  the  seaboard,  too, 
and  Boston,  New  York,  Philadelphia  and  Baltimore  were.£V/ 
all  doing  considerable  refining.  There  was  always  a  strong 
feeling  in  the  Oil  Regions  that  the  refining  should  be  done  at 
home.  Before  the  railroads  came  the  most  heroic  efforts  were 
made  again  and  again  to  get  in  the  necessary  machinery. 
Brought  from  Pittsburg  by  water,  as  a  rule,  the  apparatus 
had  to  be  hauled  from  Oil  City,  where  it  had  been  dumped  on 
the  muddy  bank  of  the  river — there  were  no  wharfs — over 
the  indescribable  roads  to  the  site  chosen.  It  took  weeks — 
months  sometimes — to  get  in  the  apparatus.  The  chemicals 
used  in  the  making  of  the  oil,  the  barrels  in  which  to  store 
it — all  had  to  be  brought  from  outside.  The  wonder  is  that 
under  these  conditions  anybody  tried  to  refine  on  the  creek. 
But  refineries  persisted  in  coming,  and  after  the  railroads 
came,  increased;  by  1872  the  daily  capacity  had  grown  to 
nearly  10,000  barrels,  and  there  were  no  more  complete  or 
profitable  plants  in  existence  than  two  or  three  of  those  on  the 
creek.  The  only  points  having  larger  daily  capacity  were 
Cleveland  and  New  York  City.  Several  of  the  refineries  had 
added  barrel  works.  Acids  were  made  on  the  ground.  Iron 
works  at  Oil  City  and  Titusville  promised  soon  to  supply 
the  needs  of  both  drillers  and  refiners.  The  exultation  was 

[29] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
great,  and  the  press  and  people  boasted  that  the  day  would 
soon  come  when  they  would  refine  for  the  world.  There  in 
their  own  narrow  valleys  should  be  made  everything  which 
petroleum  would  yield.  Cleveland,  Pittsburg— the  Seaboard 
—must  give  up  refining.  The  business  belonged  to  the  Oil 
Regions,  and  the  oil  men  meant  to  take  it. 

A  significant  development  in  the  region  was  the  tendency 
among  many  of  the  oil  men  to  combine  different  branches  of 
the  business.  Several  large  producers  conducted  shipping 
agencies  for  handling  their  own  and  other  people's  oil.  The 
firm  of  Pierce  and  Neyhart  was  a  prominent  one  carrying  on 
this  double  business  in  the  sixties  and  early  seventies.  J.  J. 
Vandergrift,  who  has  been  mentioned  already  as  one  of  the 
first  men  to  take  hold  of  the  transportation  problem,  early 
became  interested  in  production.  As  soon  as  the  pipe-line  was 
demonstrated  to  be  a  success  he  began  building  lines.  He  also 
added  to  his  interests  a  large  refinery,  the  Imperial  of  Oil 
City.  Captain  Vandergrift  by  1870  produced,  transported 
and  refined  his  own  oil  as  well  as  transported  and  refined  much 
of  other  people's.  It  was  a  common  practice  for  a  refinery  in 
the  Oil  Regions  to  pipe  oil  directly  to  its  works  by  its  own 
line,  and  in  1872  one  refinery  in  Titusville,  the  Octave,  carried 
its  refined  oil  a  mile  or  more  by  pipe  to  the  railroad.  Although 
most  of  the  refineries  at  this  period  sold  their  products  to 
dealers  and  exporters,  the  building  up  of  markets  by  direct 
contact  with  new  territory  was  beginning  to  be  a  consideration 
with  all  large  manufacturers.  The  Octave  of  Titusville,  for 
instance,  chartered  a  ship  in  1872  to  load  with  oil  and  send 
in  charge  of  its  own  agent  into  South  American  ports. 

The  odds  against  the  oil  men  in  developing  the  business 
had  not  been  merely  physical  ones.  There  had  been  more 
than  the  wilderness  to  conquer,  more  than  the  possibilities  of 
a  new  product  to  learn.  Over  all  the  early  years  of  their 
struggle  and  hardships  hovered  the  dark  cloud  of  the  Civil 

[30] 


THE  BIRTH  OF  AN  INDUSTRY 

War.  They  were  so  cut  off  from  men  that  they  did  not  hear 
of  the  fall  of  Sumter  for  four  days  after  it  happened,  and  the 
news  for  the  time  blotted  out  interest  even  in  flowing  wells. 
Twice  at  least  when  Lee  invaded  Pennsylvania  the  whole 
business  came  to  a  stand-still,  men  abandoning  the  drill,  the 
pump,  the  refinery  to  make  ready  to  repel  the  invader.  They 
were  taxed  for  the  war — taxes  rising  to  ten  dollars  per  barrel 
in  1865 — one  dollar  on  crude  and  twenty  cents  a  gallon  on 
refined  (the  oil  barrel  is  usually  estimated  at  forty- two 
gallons).  They  gave  up  their  quota  of  men  again  and  again 
at  the  call  for  recruits,  and  when  the  end  came  and  a  million 
men  were  cast  on  the  country,  this  little  corner  of  Pennsyl- 
vania absorbed  a  larger  portion  of  men  probably  than  any 
other  spot  in  the  United  States.  The  soldier  was  given  the 
first  chance  everywhere  at  work,  he  was  welcomed  into  oil 
companies,  stock  being  given  him  for  the  value  of  his  war 
record.  There  were  lieutenants  and  captains  and  majors — 
even  generals — scattered  all  over  the  field,  and  the  field  felt 
itself  honoured,  and  bragged,  as  it  did  of  all  things,  of  the 
number  of  privates  and  officers  who  immediately  on  disband- 
ment  had  turned  to  it  for  employment. 

It  was  not  only  the  Civil  War  from  which  the  Oil  Regions 
had  suffered;  in  1870  the  Franco-Prussian  War  broke  the 
foreign  market  to  pieces  and  caused  great  loss  to  the  whole 
industry.  And  there  had  been  other  troubles.  From  the  first, 
oil  men  had  to  contend  with  wild  fluctuations  in  the  price  of 
oil.  In  1859  it  was  twenty  dollars  a  barrel,  and  in  1861  it  had 
averaged  fifty-two  cents.  Two  years  later,  in  1863,  lt  averaged 
$8.15,  and  in  1867  but  $2.40.  In  all  these  first  twelve  years 
nothing  like  a  steady  price  could  be  depended  on,  for  just  as 
the  supply  seemed  to  have  approached  a  fixed  amount,  a 
"wildcat"  well  would  come  in  and  "knock  the  bottom  out  of 
the  market."  Such  fluctuations  were  the  natural  element  of 
the  speculator,  and  he  came  early,  buying  in  quantities  and 

[31] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
holding  in  storage  tanks  for  higher  prices.  If  enough  oil 
was  held,  or  if  the  production  fell  off,  up  went  the  price,  only 
to  be  knocked  down  by  the  throwing  of  great  quantities  of 
stocks  on  the  market.  The  producers  themselves  often  held 
their  oil,  though  not  always  to  their  own  profit.  A  historic 
case  of  obstinate  holding  occurred  in  1871  on  the  "McCray 
farm,"  the  most  productive  field  in  the  region  at  that  time. 
Prices  were  hovering  around  three  dollars,  and  McCray  swore 
he  would  not  sell  under  five  dollars.  He  bought,  hired  and 
built  iron  tankage  until  he  had  upward  of  200,000  barrels. 
There  was  great  loss  from  leakage  and  from  evaporation  and 
there  were  taxes,  but  McCray  held  on,  refusing  four  dollars, 
$4.50,  and  even  five  dollars.  Evil  times  came  in  the  Oil  Regions 
soon  after  and  with  them  "dollar  oil."  McCray  finally  was 
obliged  to  sell  his  stocks  at  about  $1.20  per  barrel.  To  develop 
a  business  in  face  of  such  fluctuations  and  speculation  in  the 
raw  product  took  not  only  courage — it  took  a  dash  of  the 
gambler.  It  never  could  have  been  done,  of  course,  had  it 
not  been  for  the  streams  of  money  which  flowed  unceasingly 
and  apparently  from  choice  into  the  regions.  In  1865  Mr. 
Wright  calculated  that  the  oil  country  was  using  a  capital  of 
$100,000,000.  In  1872  the  oil  men  claimed  the  capital  in 
operation  was  $200,000,000.  It  has  been  estimated  that  in  the 
first  decade  of  the  industry  nearly  $350,000,000  was  put  into  it. 
Speculation  in  oil  stock  companies  was  another  great  evil. 
It  reached  its  height  in  1864  and  1865 — the  "flush  times"  of 
the  business.  Stocks  in  companies  whose  holdings  were  hardly 
worth  the  stamps  on  the  certificates  were  sold  all  over  the  land. 
In  March,  1865,  the  aggregate  capital  of  the  oil  companies 
whose  charters  were  on  file  in  Albany,  New  York,  was  $350,- 
000,000,  and  in  Philadelphia  alone  in  1864  and  1865  1,000 
oil  companies,  mostly  bogus,  are  said  to  have  been  formed. 
These  swindles  were  dignified  by  the  names  of  officers  of 
distinction  in  the  United  States  army,  for  the  war  was  coming 

[32] 


THE  BIRTH  OF  AN  INDUSTRY 

to  an  end  and  the  name  of  a  general  was  the  most  popular 
and  persuasive  argument  in  the  country.  Of  course  there  came 
a  collapse.  The  "oil  bubble"  burst  in  1866,  and  it  was  noth- 
ing but  the  irrepressible  energy  of  the  region  which  kept  the 
business  going  in  the  panic  which  followed. 

Then  there  was  the  disturbing  effect  of  foreign  competition. 
What  would  become  of  them  if  oil  was  found  in  quantities  in 
other  countries?  A  decided  depression  of  the  market  occurred 
in  1866  when  the  government  sent  out  reports  of  developments 
of  foreign  oil  fields.  If  there  was  oil  in  Japan,  China,  Burmah, 
Persia,  Russia,  Bavaria,  in  the  quantities  the  government 
reports  said,  why,  there  was  trouble  in  store  for  Pennsylvania, 
the  oil  men  argued,  and  for  a  day  the  market  fell — it  was  only 
for  a  day.  Men  forgot  easily  in  the  Oil  Regions  in  the  sixties. 

An  evil  in  their  business  which  they  were  only  beginning 
to  grasp  fully  in  1871  was  the  unholy  system  of  freight  dis- 
crimination which  the  railroads  were  practising.  Three  trunk 
lines  competed  for  the  business  by  1872 — the  Pennsylvania, 
which  had  leased  the  Philadelphia  and  Erie,  the  Erie  and 
the  Central.  (The  latter  road  reached  the  Oil  Regions  by  a 
branch  from  Ashtabula  on  the  Lake  Shore  and  Michigan 
Southern  division  to  Oil  City;  this  branch  was  completed  in 
1868.)  The  Pennsylvania  claimed  the  oil  traffic  as  a  natural 
right;  for  the  Oil  Regions  were  in  Pennsylvania,  and  did  not 
Tom  Scott  own  that  state?  The  Erie  road  for  about  five  years 
had  been  in  the  hands  of  those  splendid  pirates,  Jay  Gould  and 
"Jim"  Fisk.  Naturally  they  took  all  they  could  get  of  the 
oil  traffic  and  took  it  by  freebooting  methods.  "Corners"  and 
"rings"  were  their  favourite  devices  for  securing  trade,  and 
more  than  once  their  aid  had  carried  through  daring  and 
unscrupulous  speculations  in  oil.  The  Central  in  this  period 
was  waging  its  famous  desperate  war  on  the  Erie,  Commodore 
Vanderbilt  having  marked  that  highway  for  his  own  along 
with  most  other  things  in  New  York  State.  All  three  of  the 

[33] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

roads  began  as  early  as  1868  to  use  secret  rebates  on  the 
published  freight  rates  in  oil  as  a  means  of  securing  traffic. 
This  practice  had  gone  on  until  in  1871  any  big  producer, 
refiner,  or  buyer  could  bully  a  freight  agent  into  a  special 
rate.  Those  "on  the  inside,"  those  who  had  "pulls,"  also 
secured  special  rates.  The  result  was  that  the  open  rate  was 
enforced  only  on  the  innocent  and  the  weak. 

Serious  as  all  these  problems  were,  there  was  no  discourage- 
ment or  shrinking  from  them.  The  oil  men  had  rid  themselves 
of  bunco  men  and  burst  the  "oil  bubbles."  They  had  harnessed 
the  brokers  in  exchanges  and  made  strict  rules  to  govern  them. 
They  had  learned  not  to  fear  the  foreigners,  and  to  take  with 
equal  sang  froid  the  "dry-hole"  which  made  them  poor,  or 
the  "gusher"  which  made  them  rich.  For  every  evil  they  had 
a  remedy.  They  were  not  afraid  even  of  the  railroads,  and 
loudly  declared  that  if  the  discriminations  were  not  stopped 
they  would  build  a  railroad  of  their  own.  Indeed,  the  evils 
in  the  oil  business  in  1871,  far  from  being  a  discouragement, 
rather  added  to  the  interest.  They  had  never  known  anything 
but  struggle — with  conquest — and  twelve  years  of  it  was  far 
from  cooling  their  ardour  for  a  fair  fight. 

More  had  been  done  in  the  Oil  Regions  in  the  first  dozen 
years  than  the  development  of  a  new  industry.  From  the  first 
there  had  gone  with  the  oil  men's  ambition  to  make  oil  to 
light  the  whole  earth  a  desire  to  bring  civilisation  to  the 
wilderness  from  which  they  were  drawing  wealth,  to  create 
an  orderly  society  from  the  mass  of  humanity  which  poured 
pell-mell  into  the  region.  A  hatred  of  indecency  first  drew 
together  the  better  element  of  each  of  the  rough  communities 
which  sprang  up.  Whiskey-sellers  and  women  flocked  to  the 
region  at  the  breaking  out  of  the  excitement.  Their  first 
shelters  were  shanties  built  on  flatboats  which  were  towed 
from  place  to  place.  They  came  to  Rouseville — a  collection  of 
pine  shanties  and  oil  derricks,  built  on  a  muddy  flat — as  for- 

[34] 


/  r  / 


nurt  noun  m% 


r  1848^ 

Discovered  »,  Rorin 
for  .SALT  WAT KK 


gSM 


<p  18490 

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medical  vihites 


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V 


.1-  p 


>,/<•/•/     FOTTIt   'ui  irjHIXaa^l    FEET  /,'/(■»■ -J   ,' 


•  ft!  '•  v 


c    ihe£arm  su/fece.  is  pumped  up  teitfi  the  SW/  ?/'u/</:/f<,i,  \\  tMo  the  {bstent,,     mi  I   m 
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FAC-SIMILE   OF    A   LABEL   USED    BY   S.    M.    KIER   IN   ADVERTISING    ROCK-OIL   OBTAINED   IN 
DRILLING    SALT    WELLS   NEAR   TARENTUM,    PENNSYLVANIA 


THE  BIRTH  OF  AN  INDUSTRY 

lorn  and  disreputable  a  town  in  appearance  as  the  earth  ever 
saw.  They  tied  up  for  trade,  and  the  next  morning  woke  up 
from  their  brawl  to  find  themselves  twenty  miles  away,  float- 
ing down  the  Allegheny  River.  Rouseville  meant  to  be  decent. 
She  had  cut  them  loose,  and  by  such  summary  vigilance  she 
kept  herself  decent.  Other  towns  adopted  the  same  policy. 
By  common  consent  vice  was  corralled  largely  in  one  town. 
Here  a  whole  street  was  given  up  to  dance-houses  and  saloons, 
and  those  who  must  have  a  "spree"  were  expected  to  go  to 
Petroleum  Centre  to  take  it. 

Decency  and  schools!  Vice  cut  adrift,  they  looked  for  a 
school  teacher.  Children  were  sadly  out  of  place,  but  there 
they  were,  and  these  men,  fighting  for  a  chance,  saw  to  it  that 
a  shanty,  with  a  school  teacher  in  it,  was  in  every  settlement. 

»was  not  long,  too,  before  there  was  a  church,  a  union 
urch.  To  worship  God  was  their  primal  instinct;  to  defend 
creed  a  later  development.  In  the  beginning  every  social 
contrivance  was  wanting.  There  were  no  policemen,  and  each 
individual  looked  after  evil-doers.  There  were  no  firemen, 
and  every  man  turned  out  with  a  bucket  at  a  fire.  There  were 
no  bankers,  and  each  man  had  to  put  his  wealth  away  as  best  he 
could  until  a  peripatetic  banker  from  Pittsburg  relieved  him. 
At  one  time  Dr.  Egbert,  a  rich  operator,  is  said  to  have  had 
$1,800,000  in  currency  in  his  house.  There  were  no  hospitals, 
and  in  1861,  when  the  horrible  possibilities  of  the  oil  fire  were 
first  demonstrated  by  the  burning  of  the  Rouse  well,  a  fire 
at  which  nineteen  persons  lost  their  lives,  the  many  injured 
found  welcome  and  care  for  long  weeks  in  the  little  shanties 
of  women  already  o\w,rburdened  by  the  difficulties  of  caring 
for  families  in  the  rough  community. 

Out  of  this  poverty  and  disorder  they  had  developed  in 
ten  years  a  social  organisation  as  good  as  their  commercial. 
Titusville,  the  hamlet  on  whose  outskirts  Drake  had  drilled 

I;  well,  was  now  a  city  of  10,000  inhabitants.  It  had  an  opera 
I*, 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

house,  where  in  1871  Clara  Louise  Kellogg  and  Christine 
Nilsson  sang,  Joe  Jefferson  and  Janauschek  played,  and  Wen- 
dell Phillips  and  Bishop  Simpson  spoke.  It  had  two  prosper- 
ous and  fearless  newspapers.  Its  schools  prepared  for  college. 
Oil  City  was  not  behind,  and  between  them  was  a  string  of 
lively  towns.  Many  of  the  oil  farms  had  a  decent  community 
life.  The  Columbia  farm  kept  up  a  library  and  reading-room 
for  its  employees ;  there  was  a  good  schoolhouse  used  on  Sun- 
day for  services,  and  there  was  a  Columbia  farm  band  of  no 
mean  reputation  in  the  Oil  Regions. 

Indeed,  by  the  opening  of  1872,  life  in  the  Oil  Regions  had 
ceased  to  be  a  mere  make-shift.  Comforts  and  orderliness  and 
decency,  even  opportunities  for  education  and  for  social  life, 
were  within  reach.  It  was  a  conquest  to  be  proud  of,  quite  as 
proud  of  as  they  were  of  the  fact  that  their  business  had  been 
developed  until  it  had  never  before,  on  the  whole,  been  in  so 
satisfactory  a  condition. 

Nobody  realised  more  fully  what  had  been  accomplished 
in  the  Oil  Regions  than  the  oil  men  themselves.  Nobody 
rehearsed  their  achievements  so  loudly.  "In  ten  years,"  they 
were  fond  of  saying,  "we  have  built  this  business  up  from 
nothing  to  a  net  product  of  six  millions  of  barrels  per  annum. 
We  have  invented  and  devised  all  the  apparatus,  the  appli- 
ances, the  forms  needed  for  a  new  industry.  We  use  a  capital 
of  $200,000,000,  and  support  a  population  of  60,000  people. 
To  keep  up  our  supply  we  drill  100  new  wells  per  month, 
at  an  average  cost  of  $6,000  each.  We  are  fourth  in  the  exports 
of  the  United  States.  We  have  developed  a  foreign  market, 
including  every  civilised  country  on  the  globe." 

But  what  had  been  done  was,  in  their  judgment,  only  a 
beginning.  Life  ran  swift  and  ruddy  and  joyous  in  these  men. 
They  were  still  young,  most  of  them  under  forty,  and  they 
looked  forward  with  all  the  eagerness  of  the  young  who  have 
just  learned  their  powers,  to  years  of  struggle  and  develop- 

[3*1 


THE  BIRTH  OF  AN  INDUSTRY 

ment.  They  would  solve  all  these  perplexing  problems  of  over- 
production, of  railroad  discrimination,  of  speculation.  They 
would  meet  their  own  needs.  They  would  bring  the  oil  refin- 
ing to  the  region  where  it  belonged.  They  would  make  their 
towns  the  most  beautiful  in  the  world.  There  was  nothing  too 
good  for  them,  nothing  they  did  not  hope  and  dare.  But  sud- 
denly, at  the  very  heyday  of  this  confidence,  a  big  hand 
reached  out  from  nobody  knew  where,  to  steal  their  conquest 
and  throttle  their  future.  The  suddenness  and  the  blackness 
of  the  assault  on  their  business  stirred  to  the  bottom  their 
manhood  and  their  sense  of  fair  play,  and  the  whole  region 
arose  in  a  revolt  which  is  scarcely  paralleled  in  the  commer- 
cial history  of  the  United  States. 


<~~-     uj  t  ■ 


• 

[37] 


CHAPTER   TWO 
THE   RISE   OF  THE   STANDARD   OIL   COMPANY 

JOHN  D.  ROCKEFELLER'S  FIRST  CONNECTION  WITH  THE  OIL  BUSINESS— 
STORIES  OF  HIS  EARLY  LIFE  IN  CLEVELAND  — HIS  FIRST  PARTNERS- 
ORGANISATION  OF  THE  STANDARD  OIL  COMPANY  IN  JUNE,  1870— ROCKE- 
FELLER'S ABLE  ASSOCIATES— FIRST  EVIDENCE  OF  RAILWAY  DISCRIMINA- 
TIONS IN  THE  OIL  BUSINESS— REBATES  FOUND  TO  BE  GENERALLY  GIVEN 
TO  LARGE  SHIPPERS— FIRST  PLAN  FOR  A  SECRET  COMBINATION— THE 
SOUTH  IMPROVEMENT  COMPANY— SECRET  CONTRACTS  MADE  WITH  THE 
RAILROADS  PROVIDING  REBATES  AND  DRAWBACKS— ROCKEFELLER  AND 
ASSOCIATES  FORCE  CLEVELAND  REFINERS  TO  JOIN  THE  NEW  COMBINA- 
TION OR  SELL— RUMOUR  OF  THE  PLAN  REACHES  THE  OIL  REGIONS. 

THE  chief  refining  competitor  of  Oil  Creek  in  1872 
was  Cleveland,  Ohio.  Since  1869  mat  cltY  nac*  done 
annually  more  refining  than  any  other  place  in  the 
country.  Strung  along  the  banks  of  Walworth  and 
Kingsbury  Runs,  the  creeks  to  which  the  city  frequently  ban- 
ishes her  heavy  and  evil-smelling  burdens,  there  had  been 
since  the  early  sixties  from  twenty  to  thirty  oil  refineries.  Why 
they  were  there,  more  than  200  miles  from  the  spot  where 
the  oil  was  taken  from  the  earth,  a  glance  at  a  map  of  the 
railroads  of  the  time  will  show:  By  rail  and  water  Cleveland 
commanded  the  entire  Western  market.  It  had  two  trunk  lines 
running  to  New  York,  both  eager  for  oil  traffic,  and  by  Lake 
Erie  and  the  canal  it  had  for  a  large  part  of  the  year  a 
splendid  cheap  waterway.  Thus,  at  the  opening  of  the  oil 
business,  Cleveland  was  destined  by  geographical  position  to 
be  a  refining  center. 

Men  saw  it,  and  hastened  to  take  advantage  of  the  opportu-  I 
nity.  There  was  grave  risk.  The  oil  supply  might  not  hold 

[38] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

out.  As  yet  there  was  no  certain  market  for  refined  oil.  But 
a  sure  result  was  not  what  drew  people  into  the  oil  business 
in  the  early  sixties.  Fortune  was  running  fleet-footed  across 
the  country,  and  at  her  garment  men  clutched.  They  loved 
the  chase  almost  as  they  did  success,  and  so  many  a  man  in 
Cleveland  tried  his  luck  in  an  oil  refinery,  as  hundreds  on 
Oil  Creek  were  trying  it  in  an  oil  lease.  By  1865  there  were 
thirty  refineries  in  the  town,  with  a  capital  of  about  a  million 
and  a  half  dollars  and  a  daily  capacity  of  some  2,000  barrels. 
The  works  multiplied  rapidly.  The  report  of  the  Cleveland 
Board  of  Trade  for  1866  gives  the  number  of  plants  at  the 
end  of  that  year  as  fifty,  and  it  dilates  eloquently  on  the 
advantages  of  Cleveland  as  a  refining  point  over  even  Pitts- 
burg, to  that  time  supposed  to  be  the  natural  centre  for  the 
business.  If  the  railroad  and  lake  transportation  men  would 
but  adopt  as  liberal  a  policy  toward  the  oil  freights  of  Cleve- 
land as  the  Pennsylvania  Railroad  was  adopting  toward  that  of 
Pittsburg,  aided  by  her  natural  advantages  the  town  was  bound 
to  become  the  greatest  oil  refining  centre  in  the  United  States. 
By  1868  the  Board  of  Trade  reported  joyfully  that  Cleveland 
was  receiving  within  300,000  barrels  as  much  oil  as  Pitts- 
burg. In  1869  sne  surpassed  all  competitors.  "Cleveland  now 
claims  the  leading  position  among  the  manufacturers  of  petro- 
leum with  a  very  reasonable  prospect  of  holding  that  rank 
for  some  time  to  come,"  commented  the  Board  of  Trade 
report.  "Each  year  has  seen  greater  consolidation  of  capital, 
greater  energy  and  success  in  prosecuting  the  business,  and, 
notwithstanding  some  disastrous  fires,  a  stronger  determina- 
tion to  establish  an  immovable  reputation  for  the  quantity  and 
quality  of  this  most  important  product.  The  total  capital 
nvested  in  this  business  is  not  less  than  four  millions  of 
lollars  and  the  total  product  of  the  year  would  not  fall  short 
if  fifteen  millions." 
Among  the  many  young  men  of  Cleveland  who,  from  the 

[39] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
start,  had  an  eye  on  the  oil-refining  business  and  had  begun 
to  take  an  active  part  in  its  development  as  soon  as  it  was 
demonstrated  that  there  was  a  reasonable  hope  of  its  being 
permanent,  was  a  young  firm  of  produce  commission  mer- 
chants. Both  members  of  this  firm  were  keen  business  men, 
and  one  of  them  had  remarkable  commercial  vision — a  genius 
for  seeing  the  possibilities  in  material  things.  This  man's 
name  was  Rockefeller — John  D.  Rockefeller.  He  was  but 
twenty-three  years  old  when  he  first  went  into  the  oil  business, 
but  he  had  already  got  his  feet  firmly  on  the  business  ladder, 
and  had  got  them  there  by  his  own  efforts.  The  habit  of  driv- 
ing good  bargains  and  of  saving  money  had  started  him.  He 
himself  once  told  how  he  learned  these  lessons  so  useful  in 
money-making,  in  one  of  his  frequent  Sunday-school  talks  to 
young  men  on  success  in  business.  The  value  of  a  good  bar- 
gain he  learned  in  buying  cord-wood  for  his  father:  "I  knew 
what  a  cord  of  good  solid  beech  and  maple  wood  was.  My 
father  told  me  to  select  only  the  solid  wood  and  the  straight 
wood  and  not  to  put  any  limbs  in  it  or  any  punky  wood.  That 
was  a  good  training  for  me.  I  did  not  need  any  father  to  tell 
me  or  anybody  else  how  many  feet  it  took  to  make  a  cord 
of  wood." 

And  here  is  how  he  learned  the  value  of  investing  money: 
"Among  the  early  experiences  that  were  helpful  to  me  that 
I  recollect  with  pleasure  was  one  in  working  a  few  days  for 
a  neighbour  in  digging  potatoes — a  very  enterprising,  thrifty 
farmer,  who  could  dig  a  great  many  potatoes.  I  was  a  boy  of 
perhaps  thirteen  or  fourteen  years  of  age,  and  it  kept  me  very 
busy  from  morning  until  night.  It  was  a  ten-hour  day.  And 
as  I  was  saving  these  little  sums  I  soon  learned  that  I  could 
get  as  much  interest  for  fifty  dollars  loaned  at  seven  per  cent. 
— the  legal  rate  in  the  state  of  New  York  at  that  time  for  a 
year — as  I  could  earn  by  digging  potatoes  for  ioo  days. 
The  impression  was  gaining  ground  with  me  that  it  was  a 

[40] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

good  thing  to  let  the  money  be  my  slave  and  not  make  myself 
a  slave  to  money."  Here  we  have  the  foundation  principles  of 
a  great  financial  career. 

When  young  Rockefeller  was  thirteen  years  old,  his  father 
moved  from  the  farm  in  Central  New  York,  where  the  boy 
had  been  born  (July  8,  1839),  to  a  farm  near  Cleveland,  Ohio. 
He  went  to  school  in  Cleveland  for  three  years.  In  1855  it 
became  necessary  for  him  to  earn  his  own  living.  It  was  a  hard 
year  in  the  West  and  the  boy  walked  the  streets  for  days  look- 
ing for  work.  He  was  about  to  give  it  up  and  go  to  the  country 
when,  to  quote  the  story  as  Mr.  Rockefeller  once  told  it  to  his 
Cleveland  Sunday-school,  "As  good  fortune  would  have  it  I 
went  down  to  the  dock  and  made  one  more  application,  and  I 
was  told  that  if  I  would  come  in  after  dinner — our  noon-day 
meal  was  dinner  in  those  days — they  would  see  if  I  could  come 
to  work  for  them.  I  went  down  after  dinner  and  I  got  the  posi- 
tion, and  I  was  permitted  to  remain  in  the  city."  The  position, 
that  of  a  clerk  and  bookkeeper,  was  not  lucrative.  Accord- 
ing to  a  small  ledger  which  has  figured  frequently  in  Mr. 
Rockefeller's  religious  instructions,  he  earned  from  Septem- 
ber 26,  1855,  to  January,  1856,  fifty  dollars.  "Out  of  that,"  Mr. 
Rockefeller  told  the  young  men  of  his  Sunday-school  class,  "I 
paid  my  washerwoman  and  the  lady  I  boarded  with,  and  I 
saved  a  little  money  to  put  away." 

He  proved  an  admirable  accountant — one  of  the  early-and- 
late  sort,  who  saw  everything,  forgot  nothing  and  never 
talked.  In  1856  his  salary  was  raised  to  twenty-five  dollars  a 
month,  and  he  went  on  always  "saving  a  little  money  to  put 
away."  In  1858  came  a  chance  to  invest  his  savings.  Among  his 
acquaintances  was  a  young  Englishman,  M.  B.  Clark.  Older 
by  twelve  years  than  Rockefeller  he  had  left  a  hard  life  in 
England  when  he  was  twenty  to  seek  fortune  in  America. 
He  had  landed  in  Boston  in  1847,  without  a  penny  or  a  friend, 
and  it  had  taken  three  months  for  him  to  earn  money  to  get 

[4i] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

to  Ohio.  Here  he  had  taken  the  first  job  at  hand,  as  man-of- 
all-work,  wood-chopper,  teamster.  He  had  found  his  way  to 
Cleveland,  had  become  a  valuable  man  in  the  houses  where 
he  was  employed,  had  gone  to  school  at  nights,  had  saved 
money.  They  were  two  of  a  kind,  Clark  and  Rockefeller,  and 
in  1858  they  pooled  their  earnings  and  started  a  produce  com- 

Bobr  Prank,  cabinet  maker,  bds  17  Johnson 

BOBY  E.  W.  A  CO.  (Edward  W.  Roby  and.  William  H> 

Keith),  wood  and  coal,  C.4P.R.R.  Coal  Pier,  and 

Merwin  n  Columbus  St.  Bridge 
Rochert  Conrad,  h  17$  St  Clair 
Rock  John,  bar  keeper,  bds  11  Public  Square 
ROCKAPELLOW  JOHN  J.,  coal,a&P.R.R.CoalPtaf, 

h  183  Prospect 
Rockefeller  John  D.,  book-keeper,  h  34  Cedar 
Rockefeller  William,  physician,  h  85  Cedar  »r 
Rockett  Morris,  rectifier,'  h  182  St  Clair 
Rockwell  Edward,  Sec  C.  A  P.  R.  R,  bds  Weddell  House 

Fragment  of  a  page  in  the  city  directory  of  Cleveland,  Ohio,  for  1857.  This  is  the  first  year  in 
which  the  name  John  D.  Rockefeller  appears  in  the  directory.  The  same  entry  is  made  in  1858.  The 
next  year,  1859,  Mr.  Rockefeller  is  entered  as  a  member  of  the  firm  of  Clark  and  Rockefeller. 

mission  business  on  the  Cleveland  docks.  The  venture  suc- 
ceeded. Local  historians  credit  Clark  and  Rockefeller  with 
doing  a  business  of  $450,000  the  first  year.  The  war  came  on, 
and  as  neither  partner  went  to  the  front,  they  had  full  chance 
to  take  advantage  of  the  opportunity  for  produce  business  a 
great  army  gives.  A  greater  chance  than  furnishing  army 
supplies,  lucrative  as  most  people  found  that,  was  in  the  oil 
business  (so  Clark  and  Rockefeller  began  to  think),  and  in 
1862,  when  an  Englishman  of  ability  and  energy,  one  Samuel 
Andrews,  asked  them  to  back  him  in  starting  a  refinery,  they 
put  in  $4,000  and  promised  to  give  more  if  necessary.  Now 
Andrews  was  a  mechanical  genius.  He  devised  new  processes 
made  a  better  and  better  quality  of  oil,  got  larger  and  largei 
percentages  of  refined  from  his  crude.  The  little  refinery  gre\A 
big,  and  Clark  and  Rockefeller  soon  had  $100,000  or  more  ir 
it.  In  the  meantime  Cleveland  was  growing  as  a  refining 

[42] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 
centre.  The  business  which  in  i860  had  been  a  gamble  was 
by  1865  one  °f  tne  most  promising  industries  of  the  town. 
It  was  but  the  beginning — so  Mr.  Rockefeller  thought — 
and  in  that  year  he  sold  out. his  -share~aL  the  commission 
business  and  put  his  money  into  the  oil  firm  of  Rockefeller 
and  Andrews. 

In  the  new  firm  Andrews  attended  to  the  manufacturing. 

The  pushing  of  the  business,  the  buying  and  the  selling,  fell 

to  Rockefeller.   From  the  start  his  effect  was  tremendous. 

He  had  the  frugal  man's  hatred  of  waste  and  disorder,  of 

middlemen  and  unnecessary  manipulation,  and  he  began  a 

'  vigorous  elimination  of  these  from  his  business.  The  residuum 

that  other  refineries  let  run  into  the  ground,  he  sold.  Old  iron 

found  its  way  to  the  junk  shop.  He  bought  his  oil  directly 

from  the  wells.  He  made  his  own  barrels.  He  watched  and 

;   saved  and  contrived.  The  ability  with  which  he  made  the 

smallest  bargain  furnishes  topics  to  Cleveland  story-tellers 

I1  to-day.  Low-voiced,  soft-footed,  humble,  knowing  every  point 

in  every  man's  business,  he  never  tired  until  he  got  his  wares 

at  the  lowest  possible  figure.  "John  always  got  the  best  of  the 

I  bargain,"  old  men  tell  you  in  Cleveland  to-day,  and  they  wince 

[  though  they  laugh  in  telling  it.  "Smooth,"  "a  savy  fellow,"  is 

I  their  description  of  him.  To  drive  a  good  bargain  was  the 

I  joy  of  his  life.  "The  only  time  I  ever  saw  John  Rockefeller 

J  enthusiastic,"  a  man  told  the  writer  once,  "was  when  a  report 

j  came  in  from  the  creek  that  his  buyer  had  secured  a  cargo 

I  of  oil  at  a  figure  much  below  the  market  price.  He  bounded 

1  from  his  chair  with  a  shout  of  joy,  danced  up  and  down, 

hugged  me,  threw  up  his  hat,  acted  so  like  a  madman  that  I 

I  have  never  forgotten  it." 

He  could  borrow  as  well  as  bargain.  The  firm's  capital  was 

limited;  growing  as  they  were,  they  often  needed  money,  and 

1  had  none.  Borrow  they  must.  Rarely  if  ever  did  Mr.  Rocke- 

;  feller  fail.  There  is  a  story  handed  down  in  Cleveland  from 

[43] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  days  of  Clark  and  Rockefeller,  produce  merchants,  which 
is  illustrative  of  his  methods.  One  day  a  well-known  and  rich 
business  man  stepped  into  the  office  and  asked  for  Mr.  Rocke- 
feller. He  was  out,  and  Clark  met  the  visitor.  "Mr.  Clark," 
he  said,  "you  may  tell  Mr.  Rockefeller,  when  he  comes  in, 
that  I  think  I  can  use  the  $10,000  he  wants  to  invest  with  me 
for  your  firm.  I  have  thought  it.  all  over." 

"Good  God!"  cried  Clark,  "we  don't  want  to  invest  $10,000. 
John  is  out  right  now  trying  to  borrow  $5,000  for  us." 

It  turned  out  that  to  prepare  him  for  a  proposition  to  bor- 
row $5,000  Mr.  Rockefeller  had  told  the  gentleman  that  he 
and  Clark  wanted  to  invest  $10,000! 

"And  the  joke  of  it  is,"  said  Clark,  who  used  to  tell  the 
story,  "John  got  the  $5,000  even  after  I  had  let  the  cat  out  of 
the  bag.  Oh,  he  was  the  greatest  borrower  you  ever  saw!" 

These  qualities  told.  The  firm  grew  as  rapidly  as  the  oil 
business  of  the  town,  and  started  a  second  refinery — William 
A.  Rockefeller  and  Company.  They  took  in  a  partner,  H.  M. 
Flagler,  and  opened  a  house  in  New  York  for  selling  oil.  Of 
all  these  concerns  John  D.  Rockefeller  was  the  head.  Finally, 
in  June,  1870,  five  years  after  he  became  an  active  partner 
in  the  refining  business,  Mr.  Rockefeller  combined  all  his 
companies  into  one — the  Standard  Oil  Company.  The  capi- 
tal of  the  new  concern  was  $1,000,000.  The  parties  inter- 
ested in  it  were  John  D.  Rockefeller,  Henry  M.  Flag- 
ler, Samuel  Andrews,  Stephen  V.  Harkness,  and  William 
Rockefeller.* 

The  strides  the  firm  of  Rockefeller  and  Andrews  made  after 
the  former  went  into  it  were  attributed  for  three  or  four  years 
mainly  to  his  extraordinary  capacity  for  bargaining  and  bor- 
rowing. Then  its  chief  competitors  began  to  suspect  some- 
thing. John  Rockefeller  might  get  his  oil  cheaper  now  and 

*  See  Appendix,  Number  2.  First  act  of  incorporation  of  the  Standard  Oil 
Company. 

[44] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

then,  they  said,  but  he  could  not  do  it  often.  He  might  make 
close  contracts  for  which  they  had  neither  the  patience  nor 
the  stomach.  He  might  have  an  unusual  mechanical  and 
practical  genius  in  his  partner.  But  these  things  could  not 


Map  of  Northwestern  Pennsylvania,  showing  the  relation  of  the  Oil  Regions  to  the  rail- 
roads in  1859,  when  oil  was  "  discovered." 

explain  all.  They  believed  they  bought,  on  the  whole,  almost 
as  cheaply  as  he,  and  they  knew  they  made  as  good  oil  and 
with  as  great,  or  nearly  as  great,  economy.  He  could  sell  at 

[45] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

no  better  price  than  they.  Where  was  his  advantage?  There 
was  but  one  place  where  it  could  be,  and  that  was  in  trans- 
portation. He  must  be  getting  better  rates  from  the  railroads 
than  they  were.  In  1868  or  1869  a  member  of  a  rival  firm  long 
in  the  business,  which  had  been  prosperous  from  the  start, 
and  which  prided  itself  on  its  methods,  its  economy  and  its 
energy,  Alexander,  Scofield  and  Company,  went  to  the  Atlantic 
and  Great  Western  road,  then  under  the  Erie  management, 
and  complained.  "You  are  giving  others  better  rates  than  you 
are  us,"  said  Mr.  Alexander,  the  representative  of  the  firm. 
"We  cannot  compete  if  you  do  that."  The  railroad  agent  did 
not  attempt  to  deny  it — he  simply  agreed  to  give  Mr.  Alex- 
ander a  rebate  also.  The  arrangement  was  interesting.  Mr. 
Alexander  was  to  pay  the  open,  or  regular,  rate  on  oil  from 
the  Oil  Regions  to  Cleveland,  which  was  then  forty  cents 
a  barrel.  At  the  end  of  each  month  he  was  to  send  to  the  rail- 
road vouchers  for  the  amount  of  oil  shipped  and  paid  for 
at  forty  cents,  and  was  to  get  back  from  the  railroad,  in  money, 
fifteen  cents  on  each  barrel.  This  concession  applied  only  to  oil 
brought  from  the  wells.  He  was  never  able  to  get  a  rebate 
on  oil  shipped  eastward.*  According  to  Mr.  Alexander,  the 
Atlantic  and  Great  Western  gave  the  rebates  on  oil  from  the 
Oil  Regions  to  Cleveland  up  to  1871  and  the  system  was  then 
discontinued.  Late  in  1871,  however,  the  firm  for  the  first  time 
got  a  rebate  on  the  Lake  Shore  road  on  oil  brought  from  the 
field. 

Another  Cleveland  man,  W.  H.  Doane,  engaged  in  ship- 
ping crude  oil,  began  to  suspect  about  the  same  time  as  Mr. 
Alexander  that  the  Standard  was  receiving  rebates.  Now  Mr. 
Doane  had  always  been  opposed  to  the  "drawback  business," 
but  it  was  impossible  for  him  to  supply  his  customers  with 
crude  oil  at  as  low  a  rate  as  the  Standard  paid  if  it  received  a 

*  Testimony  of  Mr.  Alexander  before  the  Committee  of  Commerce  of  the  United 
States  House  of  Representatives,  April,  1872. 

[46] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

rebate  and  he  did  not,  and  when  it  was  first  generally  rumoured 
in  Cleveland  that  the  railroads  were  favouring  Mr.  Rockefeller 
he  went  to  see  the  agent  of  the  road.  "I  told  him  I  did  not 
want  any  drawback,  unless  others  were  getting  it;  I  wanted 
it  if  they  were  getting  it,  and  he  gave  me  at  that  time  ten  cents 
drawback."  This  arrangement  Mr.  Doane  said  had  lasted 
but  a  short  time.  At  the  date  he  was  speaking — the  spring  of 
1872 — he  had  had  no  drawback  for  two  years. 

A  still  more  important  bit  of  testimony  as  to  the  time  when 
rebates  first  began  to  be  given  to  the  Cleveland  refiners  and  as 
to  who  first  got  them  and  why,  is  contained  in  an  affidavit 
made  in  1880  by  the  very  man  who  made  the  discrimination.* 
This  man  was  General  J.  H.  Devereux,  who  in  1868  suc- 
ceeded Amasa  Stone  as  vice-president  of  the  Lake  Shore  Rail- 
road. General  Devereux  said  that  his  experience  with  the  oil 
traffic  had  begun  with  his  connection  with  the  Lake  Shore; 
that  the  only  written  memoranda  concerning  oil  which  he 
found  in  his  office  on  entering  his  new  position  was  a  book  in 
which  it  was  stated  that  the  representatives  of  the  twenty- five 
oil-refining  firms  in  Cleveland  had  agreed  to  pay  a  cent  a  gal- 
lon on  crude  oil  removed  from  the  Oil  Regions.  General  Deve- 
reux says  that  he  soon  found  there  was  a  deal  of  trouble  in 
store  for  him  over  oil  freight.  The  competition  between  the 
twenty-five  firms  was  close,  the  Pennsylvania  was  "claiming 
a  patent  right"  on  the  transportation  of  oil  and  was  putting 
forth  every  effort  to  make  Pittsburg  and  Philadelphia  the 
chief  refining  centres.  Oil  Creek  was  boasting  that  it  was 
going  to  be  the  future  refining  point  for  the  world.  All  of 
this  looked  bad  for  what  General  Devereux  speaks  of  as  the 
"then  very  limited  refining  capacity  of  Cleveland."  This 
remark  shows  how  new  he  was  to  the  business,  for,  as  we  have 

*  See  Appendix,  Number  3 .  Affidavit  of  James  H.  Devereux.  At  the  time 
General  Devereux  made  this  affidavit,  1880,  he  was  president  of  the  New  York, 

I  Pennsylvania  and  Ohio  Railroad. 
[47] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

already  seen,  Cleveland  in  1868  had  anything  but  a  limited 
refining  capacity.  Between  three  and  four  million  dollars  were 
invested  in  oil  refineries,  and  the  town  was  receiving  within 
35,000  barrels  of  as  much  oil  as  New  York  City,  and  within 
300,000  as  much  as  Pittsburg,  and  it  was  boasting  that  the 
next  year  it  would  outstrip  these  competitors,  which,  as  a 
matter  of  fact,  it  did. 

The  natural  point  for  General  Devereux  to  consider,  of 
course,  was  whether  he  could  meet  the  rates  the  Pennsyl- 
vania were  giving  and  increase  the  oil  freight  for  the  Lake 
Shore.  The  road  had  a  branch  running  to  Franklin,  Pennsyl- 
vania, within  a  few  miles  of  Oil  City.  This  he  completed,  and 
then,  as  he  says  in  his  affidavit,  "a  sharper  contest  than  ever  was 
produced  growing  out  of  the  opposition  of  the  Pennsylvania 
Railroad  in  competition.  Such  rates  and  arrangements  were 
made  by  the  Pennsylvania  Railroad  that  it  was  publicly  pro- 
claimed in  the  public  print  in  Oil  City,  Titusville  and  other 
places  that  Cleveland  was  to  be  wiped  out  as  a  refining  centre 
as  with  a  sponge."  General  Devereux  goes  on  to  say  that  all 
the  refiners  of  the  town,  without  exception,  came  to  him  in 
alarm,  and  expressed  their  fears  that  they  would  have  either 
to  abandon  their  business  there  or  move  to  Titusville  or  other 
points  in  the  Oil  Regions;  that  the  only  exception  to  this 
decision  was  that  offered  by  Rockefeller,  Andrews  and  Flagler, 
who,  on  his  assurance  that  the  Lake  Shore  Railroad  could  and 
would  handle  oil  as  cheaply  as  the  Pennsylvania  Company, 
proposed  to  stand  their  ground  at  Cleveland  and  fight  it  out 
on  that  line.  And  so  General  Devereux  gave  the  Standard  the 
rebate  on  the  rate  which  Amasa  Stone  had  made  with  all  the 
refiners.  Why  he  should  not  have  quieted  the  fears  of  the 
twenty-four  or  twenty-five  other  refiners  by  lowering  their 
rate,  too,  does  not  appear  in  the  affidavit.  At  all  events  the 
rebate  had  come,  and,  as  we  have  seen,  it  soon  was  suspected 
and  others  went  after  it,  and  in  some  cases  got  it.  But  the 

[48] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

rebate  seems  to  have  been  granted  generally  only  on  oil 
brought  from  the  Oil  Regions.  Mr.  Alexander  claims  he  was 
never  able  to  get  his  rate  lowered  on  his  Eastern  shipments. 
The  railroad  took  the  position  with  him  that  if  he  could  ship 
as  much  oil  as  the  Standard  he  could  have  as  low  a  rate,  but 
not  otherwise.  Now  in  1870  the  Standard  Oil  Company  had  a 
daily  capacity  of  about  1,500  barrels  of  crude.  The  refinery 
was  the  largest  in  the  towrn,  though  it  had  some  close  competi- 
tors. Nevertheless  on  the  strength  of  its  large  capacity  it  re- 
ceived the  special  favour.  It  was  a  plausible  way  to  get  around 
the  theory  generally  held  then,  as  now,  though  not  so  definitely 
crystallised  into  law,  that  the  railroad  being  a  common  car- 
rier had  no  right  to  discriminate  between  its  patrons.  It 
remained  to  be  seen  whether  the  practice  would  be  accepted 
by  Mr.  Rockefeller's  competitors  without  a  contest,  or,  if 
contested,  would  be  supported  by  the  law. 

What  the  Standard's  rebate  on  Eastern  shipments  was  in 
1870  it  is  impossible  to  say.  Mr.  Alexander  says  he  was  never 
able  to  get  a  rate  lower  than  $1.33  a  barrel  by  rail,  and  that 
it  was  commonly  believed  in  Cleveland  that  the  Standard  had 
a  rate  of  ninety  cents.  Mr.  Flagler,  however,  the  only  member 
of  the  firm  who  has  been  examined  under  oath  on  that  point, 
showed,  by  presenting  the  contract  of  the  Standard  Oil  Com- 
pany with  the  Lake  Shore  road  in  1870,  that  the  rates  varied 
during  the  year  from  $1.40  to  $1.20  and  $1.60,  according  to 
the  season.  When  Mr.  Flagler  was  asked  if  there  was  no 
drawback  or  rebate  on  this  rate  he  answered,  "None  what- 


ever." 


It  would  seem  from  the  above  as  if  the  one  man  in  the 
Cleveland  oil  trade  in  1870  who  ought  to  have  been  satisfied 
was  Mr.  Rockefeller.  His  was  the  largest  firm  in  the  largest 
refining  centre  of  the  country;  that  is,  of  the  10,000  to  12,000 
daily  capacity  divided  among  the  twenty-five  or  twenty-six 
refiners  of  Cleveland  he  controlled  1,500  barrels.  Not  only  was 

[49] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
Cleveland  the  largest  refining  centre  in  the  country,  it  was 
gaining  rapidly,  for  where  in  1868  it  shipped  776,356  barrels 
of  refined  oil,  in  1869  it  shipped  923>933>  in  l87°  i>459>5oo, 
and  in  1871  1,640,499.*  Not  only  did  Mr.  Rockefeller  control 
the  largest  firm  in  this  most  prosperous  centre  of  a  prosperous 
business,  he  controlled  one  of  amazing  efficiency.  The  com- 
bination, in  1870,  of  the  various  companies  with  which  he 
was  connected  had  brought  together  a  group  of  remarkable 
men.  Samuel  Andrews,  by  all  accounts,  was  the  ablest  mechan- 
ical superintendent  in  Cleveland.  William  Rockefeller,  the 
brother  of  John  D.  Rockefeller,  was  not  only  an  energetic 
and  intelligent  business  man,  he  was  a  man  whom  people 
liked.  He  was  open-hearted,  jolly,  a  good  story-teller,  a  man 
who  knew  and  liked  a  good  horse — not  too  pious,  as  some 
of  John's  business  associates  thought  him,  not  a  man  to 
suspect  or  fear,  as  many  a  man  did  John.  Old  oil  men  will 
tell  you  on  the  creek  to-day  how  much  they  liked  him  in 
the  days  when  he  used  to  come  to  Oil  City  buying  oil  for 
the  Cleveland  firm.  The  personal  quality  of  William  Rocke- 
feller was,  and  always  has  been,  a  strong  asset  of  the  Stand- 
ard Oil  Company.  Probably  the  strongest  man  in  the  firm 
after  John  D.  Rockefeller  was  Henry  M.  Flagler.  He  was, 
like  the  others,  a  young  man,  and  one  who,  like  the  head 
of  the  firm,  had  the  passion  for  money,  and  in  a  hard  self- 
supporting  experience,  begun  when  but  a  boy,  had  learned, 
as  well  as  his  chief,  some  of  the  principles  of  making  it.  He 
was  untiring  in  his  efforts  to  increase  the  business,  quick  to 
see  an  advantage,  as  quick  to  take  it.  He  had  no  scruples  to 
make  him  hesitate  over  the  ethical  quality  of  a  contract  which 
was  advantageous.  Success,  that  is,  making  money,  was  its  own 
justification.  He  was  not  a  secretive  man,  like  John  D.  Rocke- 
feller, not  a  dreamer,  but  he  could  keep  his  mouth  shut  when 
necessary  and  he  knew  the  worth  of  a  financial  dream  when 

*  Report  for  1 871  of  the  Cleveland  Board  of  Trade. 

[50] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

it  was  laid  before  him.  It  must  have  been  evident  to  every 
business  man  who  came  in  contact  with  the  young  Standard 
Oil  Company  that  it  would  go  far.  The  firm  itself  must  have 
known  it  would  go  far.  Indeed  nothing  could  have  stopped 
the  Standard  Oil  Company  in  1870 — the  oil  business  being 
what  it  was — but  an  entire  change  in  the  nature  of  the  members 
of  the  firm,  and  they  were  not  the  kind  of  material  which 
changes. 

With  such  a  set  of  associates,  with  his  organisation  com- 
plete from  his  buyers  on  the  creek  to  his  exporting  agent  in 
New  York,  with  the  transportation  advantages  which  none 
of  his  competitors  had  had  the  daring  or  the  persuasive  power 
to  get,  certainly  Mr.  Rockefeller  should  have  been  satisfied 
in  1870.  But  Mr.  Rockefeller  was  far  from  satisfied.  He  was 
a  brooding,  cautious,  secretive  man,  seeing  all  the  possible 
dangers  as  well  as  all  the  possible  opportunities  in  things,  and 
he  studied,  as  a  player  at  chess,  all  the  possible  combinations 
which  might  imperil  his  supremacy.  These  twenty-five  Cleve- 
land rivals  of  his — how  could  he  at  once  and  forever  put  them 
out  of  the  game?  He  and  his  partners  had  somehow  conceived 
a  great  idea — the  advantages  of  combination.  What  might 
they  not  do  if  they  could  buy  out  and  absorb  the  big  refin- 
eries now  competing  with  them  in  Cleveland?  The  possi- 
bilities of  the  idea  grew  as  they  discussed  it.  Finally  they 
began  tentatively  to  sound  some  of  their  rivals.  But  there  were 
other  rivals  than  these  at  home.  There  were  the  creek  refiners! 
They  were  there  at  the  mouth  of  the  wells.  What  might  not 
this  geographical  advantage  do  in  time?  Refining  was  going 
on  there  on  an  increasing  scale;  the  capacity  of  the  Oil 
Regions  had  indeed  risen  to  nearly  10,000  barrels  a  day — 
equal  to  that  of  New  York,  exceeding  that  of  Pittsburg  by 
nearly  4,000  barrels,  and  almost  equalling  that  of  Cleveland. 
The  men  of  the  oil  country  loudly  declared  that  they  meant  to 
refine  for  the  world.  They  boasted  of  an  oil  kingdom  which 

[5i] 


v' 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

eventually  should  handle  the  entire  business  and  compel 
Cleveland  and  Pittsburg  either  to  abandon  their  works  or 
bring  them  to  the  oil  country.  In  this  boastful  ambition  they 
were  encouraged  particularly  by  the  Pennsylvania  Railroad, 
which  naturally  handled  the  largest  percentage  of  the  oil. 
How  long  could  the  Standard  Oil  Company  stand  against 
this  competition? 

There  was  another  interest  as  deeply  concerned  as  Mr. 
Rockefeller  in  preserving  Cleveland's  supremacy  as  a  refin- 
ing centre,  and  this  was  the  Lake  Shore  and  New  York  Cen- 
tral Railroads.  Let  the  bulk  of  refining  be  done  in  the  Oil 
Regions  and  these  roads  were  in  danger  of  losing  a  profitable 
branch  of  business.  This  situation  in  regard  to  the  oil  traffic 
was  really  more  serious  now  than  in  1868  when  General! 
Devereux  had  first  given  the  Standard  a  rebate.  Then  it  was 
that  the  Pennsylvania,  through  its  lusty  ally  the  Empire 
Transportation  Company,  was  making  the  chief  fight  to 
secure  a  "patent  right  on  oil  transportation."  The  Erie  was 
now  becoming  as  aggressive  a  competitor.  Gould  and  Fisk 
had  gone  into  the  fight  with  the  vigour  and  the  utter  unscrupu- 
lousness  which  characterised  all  their  dealings.  They  were 
allying  themselves  with  the  Pennsylvania  Transportation 
Company,  the  only  large  rival  pipe-line  system  which  the 
Empire  had.  They  were  putting  up  a  refinery  near  Jersey  City 
and  they  were  taking  advantage  shrewdly  of  all  the  specula- 
tivc  features  of  the  new  business. 

As  competition  grew  between  the  roads,  they  grew  mon 
reckless  in  granting  rebates,  the  refiners  more  insistent  ir 
demanding  them.  By  1871  things  had  come  to  such  a  pass  ir 
the  business  that  every  refiner  suspected  his  neighbour  to  b<  ] 
getting  better  rates  than  he.  The  result  was  that  the  freigh 
agents  were  constantly  beset  for  rebates,  and  that  the  larg< 
shippers  were  generally  getting  them  on  the  ground  of  th< 
quantity  of  oil  they  controlled.  Indeed  it  was  evident  that  th 

[52] 


£ 


0 


W.    G.    WARDEN 
Secretary  of  the  South  Improvement  Company. 


PETER   H.    WATSON 
President  of  the  South  Improvement  Company. 


• 


CHARLES   LOCKHART 

A  member  of  the  South  Improvement  Company, 
and  later  of  the  Standard  Oil  Company.  At  his 
death  in  1904  the  oldest  living  oil  operator. 


Active  partner  of  John  D.  Rockefeller  in  the  oil 
business  since  1867.  Officer  of  the  Standard  Oil 
Company  since  its  organization  in  1870. 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

rebate  being  admitted,  the  only  way  in  which  it  could  be  ad- 
justed with  a  show  of  fairness  was  to  grade  it  according  to  the 
size  of  the  shipment. 

Under  these  conditions  of  competition  it  was  certain  that 
the  New  York  Central  system  must  work  if  it  was  to  keep 
its  great  oil  freight,  and  the  general  freight  agent  of  the 
Lake  Shore  road  began  to  give  the  question  special  attention. 
This  man  was  Peter  H.  Watson.  Mr.  Watson  was  an  able 
patent  lawyer  who  served  under  the  strenuous  Stanton  as 
an  Assistant-Secretary  of  War,  and  served  well.  After  the  war 
he  had  been  made  general  freight  agent  of  the  Lake  Shore 
and  Michigan  Southern  Railroad,  and  later  president  of  the 
branch  of  that  road  which  ran  into  the  Oil  Regions.  He  had 
oil  interests  principally  at  Franklin,  Pennsylvania,  and  was 
well  known  to  all  oil  men.  He  was  a  business  intimate  of  Mr. 
Rockefeller  and  a  warm  friend  of  Horace  F.  Clark,  the  son-in- 
law  of  W.  H.  Vanderbilt,  at  that  time  president  of  the  Lake 
Shore  and  Michigan  Southern  Railroad.  As  the  Standard  Oil 
Company  was  the  largest  shipper  in  Cleveland  and  had 
already  received  the  special  favour  from  the  Lake  Shore  which 
General  Devereux  describes,  it  was  natural  that  Mr.  Watson 
should  consult  frequently  with  Mr.  Rockefeller  on  the  ques- 
tion of  holding  and  increasing  his  oil  freight.  It  was  equally 
natural,  too,  that  Mr.  Rockefeller  should  use  his  influence  with 
Mr.  Watson  to  strengthen  the  theory  so  important  to  his  rapid 
growth — the  theory  that  the  biggest  shipper  should  have  the 
best  rate. 

Two  other  towns  shared  Cleveland's  fear  of  the  rise  of  the 
Oil  Regions  as  a  refining  centre,  and  they  were  Pittsburg  and 
Philadelphia,  and  Mr.  Rockefeller  and  Mr.  Watson  found 
in  certain  refiners  of  these  places  a  strong  sympathy  with  any 
plan  which  looked  to  holding  the  region  in  check.  But  while 
the  menace  in  their  geographical  positions  was  the  first  ground 
of  sympathy  between  these  gentlemen,  something  more  than 

[53] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

local  troubles  occupied  them.  This  was  the  condition  of  the 
refining  business  as  a  whole.  It  was  unsatisfactory  in  many 
particulars.  First,  it  was  overdone.  The  great  profits  on 
refined  oil  and  the  growing  demand  for  it  had  naturally  caused 
a  great  number  to  rush  into  its  manufacture.  There  was  at 
this  time  a  refining  capacity  of  three  barrels  to  every  one 
produced.  To  be  sure,  few  if  any  of  these  plants  expected  to 
run  the  year  around.  Then,  as  to-day,  there  were  nearly  always 
some  stills  in  even  the  most  prosperous  works  shut  down.  But 
after  making  a  fair  allowance  for  this  fact  there  was  still  a 
much  larger  amount  of  refining  actually  done  than  the  market 
demanded.  The  result  was  that  the  price  of  refined  oil  was 
steadily  falling.  Where  Mr.  Rockefeller  had  received  on  an 
average  58%  cents  a  gallon  for  the  oil  he  exported  in  1865, 
the  year  he  went  into  business,  in  1870  he  received  but  26^ 
cents.  In  1865  ne  had  a  margin  of  forty- three  cents,  out  of 
which  to  pay  for  transportation,  manufacturing,  barrelling 
and  marketing  and  to  make  his  profits.  In  1870  he  had  but 
iy%  cents  with  which  to  do  all  this.  To  be  sure  his  expenses 
had  fallen  enormously  between  1865  and  1870,  but  so  had  his 
profits.  The  multiplication  of  refiners  with  the  intense  com- 
petition threatened  to  cut  them  down  still  lower.  Naturally 
Mr.  Rockefeller  and  his  friends  looked  with  dismay  on  this 
lowering  of  profits  through  gaining  competition. 

Another  anxiety  of  the  American  refiners  was  the  condi- 
tion of  the  export  trade.  Oil  had  risen  to  fourth  place  in  the 
exports  of  the  United  States  in  the  twelve  years  since  its  dis- 
covery, and  every  year  larger  quantities  were  consumed 
abroad,  but  it  was  crude  oil,  not  refined,  which  the  foreigners 
were  beginning  to  demand ;  that  is,  they  had  found  they  could 
import  crude,  refine  it  at  home,  and  sell  it  cheaper  than  they 
could  buy  American  refined.  France,  to  encourage  her  home 
refineries,  had  even  put  a  tax  on  American  refined. 

In  the  fall  of  1871,  while  Mr.  RocKefeller  and  his  friends 

[54] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

were  occupied  with  all  these  questions,  certain  Pennsylvania 
refiners,  it  is  not  too  certain  who,  brought  to  them  a  remark- 
able scheme,  the  gist  of  which  was  to  bring  together  secretly 
a  large  enough  body  of  refiners  and  shippers  to  persuade  all 
the  railroads  handling  oil  to  give  to  the  company  formed 
special  rebates  on  its  oil,  and  drawbacks  on  that  of  other 
people.  If  they  could  get  such  rates  it  was  evident  that  those 
outside  of  their  combination  could  not  compete  with  them 
long  and  that  they  would  become  eventually  the  only  refiners. 
They  could  then  limit  their  output  to  actual  demand,  and  so 
keep  up  prices.  This  done,  they  could  easily  persuade  the 
railroads  to  transport  no  crude  for  exportation,  so  that  the 
foreigners  would  be  forced  to  buy  American  refined.  They 
believed  that  the  price  of  oil  thus  exported  could  easily  be 
advanced  fifty  per  cent.  The  control  of  the  refining  interests 
would  also  enable  them  to  fix  their  own  price  on  crude.  As 
they  would  be  the  only  buyers  and  sellers,  the  speculative 
character  of  the  business  would  be  done  away  with.  In  short, 
the  scheme  they  worked  out  put  the  entire  oil  business  in 
their  hands.  It  looked  as  simple  to  put  into  operation  as  it  was 
dazzling  in  its  results.  Mr.  Flagler  has  sworn  that  neither 
he  nor  Mr.  Rockefeller  believed  in  this  scheme.*  But  when 
they  found  that  their  friend  Peter  H.  Watson,  and  various 
Philadelphia  and  Pittsburg  parties  who  felt  as  they  did  about 
the  oil  business,  believed  in  it,  they  went  in  and  began  at 
once  to  work  up  a  company — secretly.  It  was  evident  that 
a  scheme  which  aimed  at  concentrating  in  the  hands  of  one 
company  the  business  now  operated  by  scores,  and  which 
proposed  to  effect  this  consolidation  through  a  practice  of  the 
dlroads  which  was  contrary  to  the  spirit  of  their  charters, 
[though  freely  indulged  in,  must  be  worked  with  fine  dis- 
*etion  if  it  ever  were  to  be  effective. 

See  Appendix,  Number  4.  Testimony  of  Henry  M.  Flagler  on  the  South  Im- 
>vement  Company. 

[55] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
The  first  thing  was  to  get  a  charter— quietly.  At  a  meeting 
held  in  Philadelphia  late  in  the  fall  of  1871  a  friend  of  one 
of  the  gentlemen  interested  mentioned  to  him  that  a  certain 
estate  then  in  liquidation  had  a  charter  for  sale  which  gave 
its  owners  the  right  to  carry  on  any  kind  of  business  in  any 
country  and  in  any  way;  that  it  could  be  bought  for  what  it 
would  cost  to  get  a  charter  under  the  general  laws  of  the 
state,  and  that  it  would  be  a  favour  to  the  heirs  to  buy  it.  The 
opportunity  was  promptly  taken.  The  name  of  the  charter 
bought  was  the  "South  (often  written  Southern)  Improve- 
ment Company."  For  a  beginning  it  was  as  good  a  name  as 
another,  since  it  said  nothing. 

With  this  charter  in  hand  Mr.  Rockefeller  and  Mr.  Watson 
and  their  associates  began  to  seek  converts.  In  order  that  their 
great  scheme  might  not  be  injured  by  premature  public  dis- 
cussion they  asked  of  each  person  whom  they  approached  a 
pledge  of  secrecy.  Two  forms  of  the  pledges  required  before 
anything  was  revealed  were  published  later.  The  first  of  these, 
which  appeared  in  the  New  York  Tribune,  read  as  follows : 

I,  A.  B.,  do  faithfully  promise  upon  my  honour  and  faith  as  a  gentleman  that  I  will 
keep  secret  all  transactions  which  I  may  have  with  the  corporation  known  as  the 
South  Improvement  Company;  that,  should  I  fail  to  complete  any  bargains  with  the 
said  company,  all  the  preliminary  conversations  shall  be  kept  strictly  private;  and, 
finally,  that  I  will  not  disclose  the  price  for  which  I  dispose  of  my  product,  or  any 
other  facts  which  may  in  any  way  bring  to  light  the  internal  workings  or  organisation 
of  the  company.     All  this  I  do  freely  promise. 

Signed 

Witnessed  by 

A  second,  published  in  a  history  of  the  "Southern  Improve- 
ment Company,"  ran: 

The  undersigned  pledge  their  solemn  words  of  honour  that  they  will  not  communicate 
to  any  one  without  permission  of  Z  (name  of  director  of  Southern  Improvement  Com- 
pany) any  information  that  he  may  convey  to  them,  or  any  of  them,  in  relation  to  the 
Southern  Improvement  Company. 


Witness 

[56] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

That  the  promoters  met  with  encouragement  is  evident  from 
the  fact  that,  when  the  corporators  came  together  on  January 
2,  1872,  in  Philadelphia,  for  the  first  time  under  their  char- 
ter, and  transferred  the  company  to  the  stockholders,  they 
claimed  to  represent  in  one  way  or  another  a  large  part  of 
the  refining  interest  of  the  country.  At  this  meeting  1,100 
shares  of  the  stock  of  the  company,  which  was  divided  into 
2,000  $100  shares,  were  subscribed  for,  and  twenty  per  cent, 
of  their  value  was  paid  in.  Just  who  took  stock  at  this  meet- 
ing the  writer  has  not  been  able  to  discover.  At  the  same  time 
a  discussion  came  up  as  to  what  refiners  were  to  be  allowed 
to  go  into  the  new  company.  Each  of  the  men  represented  had 
friends  whom  he  wanted  taken  care  of,  and  after  considerable 
discussion  it  was  decided  to  take  in  every  refinery  they  could 
get  hold  of.  This  decision  was  largely  due  to  the  railroad  men. 
Mr.  Watson  had  seen  them  as  soon  as  the  plans  for  the  com- 
pany were  formed,  and  they  had  all  agreed  that  if  they  gave 
the  rebates  and  drawbacks  all  refineries  then  existing  must 
be  taken  in  upon  the  same  level.  That  is,  while  the  incorpora- 
tors had  intended  to  kill  off  all  but  themselves  and  their 
friends,  the  railroads  refused.tQ.go  into  a__&cjiejmte  which  was 
going  to  _put-anybody_  out-  of-  business — the  plan  if  they  went 
into  it  must  cover  the  refining  trade  as  it  stood.  It  wasenough 
that  it  could  prevent  any  oneLin__thfL  future  going  into  the 
business. 

Very  soon  after  this  meeting  of  January  2  the  rest  of  the 
stock  of  the  South  Improvement  Company  was  taken.  The 
complete  list  of  stockholders,  with  their  holdings,  was  as 
follows : 

William  Frew,  Philadelphia 10  shares 

W.  P.  Logan,  Philadelphia 10     " 

John  P.  Logan,  Philadelphia 10     " 

Charles  Lockhart,  Pittsburg 10     " 

Richard  S.  Waring,  Pittsburg 10     " 

[57] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

■      W.  G.  Warden,  Philadelphia 475  snares 

O.  F.  Waring,  Pittsburg 475 

P.  H.  Watson,  Ashtabula,  Ohio ioo 

H.  M.  Flagler,  Cleveland 180 

O.  H.  Payne,  Cleveland 180 

William  Rockefeller,  Cleveland 180 

J.  A.  Bostwick,  New  York 180 

John  D.  Rockefeller,  Cleveland* 180 

2,000  shares 

Mr.  Watson  was  elected  president  and  W.  G.  Warden 
of  Philadelphia  secretary  of  the  new  association.  It  will  be 
noticed  that  the  largest  individual  holdings  in  the  company 
were  those  of  W.  G.  Warden  and  O.  F.  Waring,  each  of  whom 
had  475  shares.  The  company  most  heavily  interested  in  the 
South  Improvement  Company  was  the  Standard  Oil  of 
Cleveland,  J.  D.  Rockefeller,  William  Rockefeller  and 
H.  M.  Flagler,  all  stockholders  of  that  company,  each  having 
180  shares — 540  in  the  company.  O.  H.  Payne  and  J.  A.  Bost- 
wick, who  soon  after  became  stockholders  in  the  Standard  Oil 
Company,  also  had  each  180  shares,  giving  Mr.  Rockefeller 
and  his  associates  900  shares  in  all. 

It  has  frequently  been  stated  that  the  South  Improvement 
Company  represented  the  bulk  of  the  oil-refining  interests  in 
the  country.  The  incorporators  of  the  company  in  approach- 
ing the  railroads  assured  them  that  this  was  so.  As  a  matter  of 
fact,  however,  the  thirteen  gentlemen  above  named,  who  were 
the  only  ones  ever  holding  stock  in  the  concern,  did  not  con- 
trol over  one-tenth  of  the  refining  business  of  the  United 
States  in  1872.  That  business  in  the  aggregate  amounted  to  a 
daily  capacity  of  about  45,000  barrels — from  45,000  to  50,000, 
Mr.  Warden  put  it — and  the  stockholders  of  the  South  Im- 

*  List  of  stockholders  given  by  W.  G.  Warden,  secretary  of  the  South  Improvement 
Company,  to  a  Congressional  Investigating  Committee  which  examined  Mr.  Warden 
and  Mr.  Watson  in  March  and  April,  1872. 

[58] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

provement  Company  owned  a  combined  capacity  of  not  over 
4,600  barrels.  In  assuring  the  railroads  that  they  controlled  the 
business,  they  were  dealing  with  their  hopes  rather  than  with 
facts. 

The  organisation  complete,  there  remained  contracts  to  be 
made  with  the  railroads.  Three  systems  were  to  be  interested: 
The  Central,  which,  by  its  connection  with  the  Lake  Shore 
and  Michigan  Southern,  ran  directly  into  the  Oil  Regions; 
the  Erie,  allied  with  the  Atlantic  and  Great  Western,  with  a 
short  line  likewise  tapping  the  heart  of  the  region;  and  the 
Pennsylvania,  with  the  connections  known  as  the  Allegheny 
Valley  and  Oil  Creek  Railroad.  The  persons  to  be  won  over 
were:  W.  H.  Vanderbilt,  of  the  Central;  H.  F.  Clark,  presi- 
dent of  the  Lake  Shore  and  Michigan  Southern;  Jay  Gould, 
of  the  Erie;  General  G.  B.  McClellan,  president  of  the 
Atlantic  and  Great  Western;  and  Tom  Scott,  of  the  Penn- 
sylvania. There  seems  to  have  been  little  difficulty  in  per- 
suading any  of  these  persons  to  go  into  the  scheme  after  they 
had  been  assured  by  the  leaders  that  all  of  the  refiners  were 
to  be  taken  in.  This  was  a  verbal  condition,  however,  not 
found  in  the  contracts  they  signed.  This  important  fact  Mr. 
Warden  himself  made  clear  when  three  months  later  he  was 
on  the  witness  stand  before  a  committee  of  Congress  appointed 
to  look  into  the  great  scheme.  "We  had  considerable  dis- 
cussion with  the  railroads,"  Mr.  Warden  said,  "in  regard  to 
the  matter  of  rebate  on  their  charges  for  freight;  they  did 
not  want  to  give  us  a  rebate  unless  it  was  with  the  understand- 
ing that  all  the  refineries  should  be  brought  into  the  arrange- 
ment and  placed  upon  the  same  level." 

Q.  You  say  you  made  propositions  to  railroad  companies,  which  they  agreed  to 
accept  upon  the  condition  that  you  could  include  all  the  refineries  ? 

A.  No,  sir;  I  did  not  say  that;  I  said  that  was  the  understanding  when  we  discussed 
this  matter  with  them;  it  was  no  proposition  on  our  part;  they  discussed  it,  not  in 
the  form  of  a  proposition  that  the  refineries  should  be  all  taken  in,  but  it  was  the 

[59] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
intention  and  resolution  of  the  company  from  the  first  that  that  should  be  the  result; 
we  never  had  any  other  purpose  in  the  matter. 

Q.  In  case  you  could  take  the  refineries  all  in,  the  railroads  proposed  to  give  you 
a  rebate  upon  their  freight  charges  ? 

A.  No,  sir;  it  was  not  put  in  that  form;  we  were  to  put  the  refineries  all  in  upon  the 
same  terms;  it  was  the  understanding  with  the  railroad  companies  that  we  were  to  have 
a  rebate;  there  was  no  rebate  given  in  consideration  of  our  putting  the  companies 
all  in,  but  we  told  them  we  would  do  it;  the  contract  with  the  railroad  companies  was 
with  us. 

Q.  But  if  you  did  form  a  company  composed  of  the  proprietors  of  all  these  refineries, 
you  were  to  have  a  rebate  upon  your  freight  charges  ? 

A.  No;  we  were  to  have  a  rebate  anyhow,  but  were  to  give  all  the  refineries  the 
privilege  of  coming  in. 

Q.  You  were  to  have  the  rebate  whether  they  came  in  or  not  ? 

A.  Yes,  sir. 

*         *         * 

"What  effect  were  these  arrangements  to  have  upon  those  who  did  not  come  into 
the  combination     ...      ?"  asked  the  chairman. 

"I  do  not  think  we  ever  took  that  question  up,"  answered  Mr.  Warden. 


A  second  objection  to  making  a  contract  with  the  com- 
pany came  from  Mr.  Scott  of  the  Pennsylvania  road  and  Mr. 
Potts  of  the  Empire  Transportation  Company.  The  substance 
of  this  objection  was  that  the  plan  took  no  account  of  the  oil 
producer — the  man  to  whom  the  world  owed  the  business. 
Mr.  Scott  was  strong  in  his  assertion  that  they  could  never 
succeed  unless  they  took  care  of  the  producers.  Mr.  Warden 
objected  strongly  to  forming  a  combination  with  them.  "The 
interests  of  the  producers  were  in  one  sense  antagonistic  to 
ours:  one  as  the  seller  and  the  other  as  the  buyer.  We  held  in 
argument  that  the  producers  were  abundantly  able  to  take 
care  of  their  own  branch  of  the  business  if  they  took  care  of 
the  quantity  produced."  So  strongly  did  Mr.  Scott  argue, 
however,  that  finally  the  members  of  the  South  Improvement 
Company  yielded,  and  a  draft  of  an  agreement,  to  be  pro- 
posed to  the  producers,  was  drawn  up  in  lead-pencil;  it  was 

[60] 


THOMAS   A.    SCOTT 

The  contract  of  the  South  Improvement  Com- 
pany with  the  Pennsylvania  Railroad  was  signed 
by  Mr.  Scott,  then  vice-president  of  the  road. 


WILLIAM   H.    VANDERBILT 

The  contract  of  the  South  Improvement  Com- 
pany with  the  New  York  Central  was  signed  by 
Mr.  Vanderbilt,  then  vice-president  of  the  road. 


JAY  GOULD 

President  of  the  Erie  Railroad  in  1872.  Signer 
of  the  contract  with  the  South  Improvement  Com- 
pany. 


COMMODORE   CORNELIUS   VANDERBILT 

President  of  the  New  York  Central  Railroad 
when  the  contract  with  the  South  Improvement 
Company  was  signed. 


(o° 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

never  presented.  It  seems  to  have  been  used  principally  to 
quiet  Mr.  Scott. 

The  work  of  persuasion  went  on  swiftly.  By  the  18th  of 
January  the  president  of  the  Pennsylvania  road,  J.  Edgar 
Thompson,  had  put  his  signature  to  the  contract,  and  soon 
after  Mr.  Vanderbilt  and  Mr.  Clark  signed  for  the  Central 
system,  and  Jay  Gould  and  General  McClellan  for  the  Erie. 
The  contracts  to  which  these  gentlemen  put  their  names  fixed 
gross  rates  of  freight  from  all  common  points,  as  the  leading 
shipping  points  within  the  Oil  Regions  were  called,  to  all 
the  great  refining  and  shipping  centres — New  York,  Phila- 
delphia, Baltimore,  Pittsburg  and  Cleveland.  For  example, 
the  open  rate  on  crude  to  New  York  was  put  at  $2.56.  On 
this  price  the  South  Improvement  Company  was  allowed  a 
rebate  of  $1.06  for  its  shipments;  but  it  got  not  only  this 
rebate,  it  was  given  in  cash  a  like  amount  on  each  barrel  of 
crude  shipped  by  parties  outside  the  combination. 

The  open  rate  from  Cleveland  to  New  York  was  two  dollars, 
and  fifty  cents  of  this  was  turned  over  to  the  South  Improve- 
ment Company,  which  at  the  same  time  received  a  rebate 
enabling  it  to  ship  for  $1.50.  Again,  an  independent  refiner 
in  Cleveland  paid  eighty  cents  a  barrel  to  get  his  crude  from 
the  Oil  Regions  to  his  works,  and  the  railroad  sent  forty  cents 
of  this  money  to  the  South  Improvement  Company.  At  the 
same  time  it  cost  the  Cleveland  refiner  in  the  combination  but 
forty  cents  to  get  his  crude  oil.  Like  drawbacks  and  rebates 
were  given  for  all  points — Pittsburg,  Philadelphia,  Boston 
and  Baltimore. 

An  interesting  provision  in  the  contracts  was  that  full  way- 
bills of  all  petroleum  shipped  over  the  roads  should  each  day 
be  sent  to  the  South  Improvement  Company.  This,  of  course, 

I  gave  them  knowledge  of  just  who  was  doing  business  outside 
of  their  company — of  how  much  business  he  was  doing,  and 
with  whom  he  was  doing  it.  Not  only  were  they  to  have  full 
[61] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
knowledge  of  the  business  of  all  shippers — they  were  to  have 
access  to  all  books  of  the  railroads. 

The  parties  to  the  contracts  agreed  that  if  anybody  appeared 
in  the  business  offering  an  equal  amount  of  transportation, 
and  having  equal  facilities  for  doing  business  with  the  South 
Improvement  Company,  the  railroads  might  give  them  equal 
advantages  in  drawbacks  and  rebates,  but  to  make  such  a 
miscarriage  of  the  scheme  doubly  improbable  each  railroad 
was  bound  to  co-operate  as  "far  as  it  legally  might  to  main- 
tain the  business  of  the  South  Improvement  Company  against 
injury  by  competition,  and  lower  or  raise  the  gross  rates  of 
transportation  for  such  times  and  to  such  extent  as  might  be 
necessary  to  overcome  the  competition.  The  rebates  and  draw- 
backs to  be  varied  pari  passu  with  the  gross  rates."  * 

The  reason  given  by  the  railroads  in  the  contract  for  grant- 
ing these  extraordinary  privileges  was  that  the  "magnitude 
and  extent  of  the  business  and  operations"  purposed  to  be  car- 
ried on  by  the  South  Improvement  Company  would  greatly 
promote  the  interest  of  the  railroads  and  make  it  desirable  for 
them  to  encourage  their  undertaking.  The  evident  advantages 
received  by  the  railroad  were  a  regular  amount  of  freight, — 
the  Pennsylvania  was  to  have  forty-five  per  cent,  of  the  East- 
bound  shipments,  the  Erie  and  Central  each  27^  per  cent., 
while  West-bound  freight  was  to  be  divided  equally  between 
them — fixed  rates,  and  freedom  from  the  system  of  cutting 
which  they  had  all  found  so  harassing  and  disastrous.  That  is, 
the  South  Improvement  Company,  which  was  to  include  the 
entire  refining  capacity  of  the  company,  was  to  act  as  the 
evener  of  the  oil  business. t 

It  was  on  the  second  of  January,  1872,  that  the  organisation 

*  Article  Fourth :  Contract  between  the  South  Improvement  Company  and  the 
Pennsylvania  Railroad  Company,  January  18,  1872. 

t  See  Appendix,  Number  5.  Contract  between  the  South  Improvement  Company 
and  the  Pennsylvania  Railroad  Company.     Dated  January  18,  1872. 

[62] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

of  the  South  Improvement  Company  was  completed.  The 
day  before  the  Standard  Oil  Company  of  Cleveland  in- 
creased its  capital  from  $1,000,000  to  $2,500,000,  "all  the 
stockholders  of  the  company  being  present  and  voting  there- 
for." *  These  stockholders  were  greater  by  five  than  in  1870, 
the  names  of  O.  B.  Jennings,  Benjamin  Brewster,  Truman  P. 
Handy,  Amasa  Stone,  and  Stillman  Witt  having  been  added. 
The  last  three  were  officers  and  stockholders  in  one  or  more 
of  the  railroads  centring  in  Cleveland.  Three  weeks  after 
this  increase  of  capital  Mr.  Rockefeller  had  the  charter  and 
contracts  of  the  South  Improvement  Company  in  hand,  and 
was  ready  to  see  what  they  would  do  in  helping  him  carry  out 
his  idea  of  wholesale  combination  in  Cleveland.  There  were 
at  that  time  some  twenty-six  refineries  in  the  town — some  of 
them  very  large  plants.  All  of  them  were  feeling  more  or  less 
the  discouraging  effects  of  the  last  three  or  four  years  of  rail- 
road discriminations  in  favour  of  the  Standard  Oil  Company. 
To  the  owners  of  these  refineries  Mr.  Rockefeller  now  went 
one  by  one,  and  explained  the  South  Improvement  Company. 
"You  see,"  he  told  them,  "this  scheme  is  bound  to  work.  It 
means  an  absolute  control  by  us  of  the  oil  business.  There  is 
no  chance  for  anyone  outside.  But  we  are  going  to  give  every- 
body a  chance  to  come  in.  You  are  to  turn  over  your  refinery 
to  my  appraisers,  and  I  will  give  you  Standard  Oil  Company 
stock  or  cash,  as  you  prefer,  for  the  value  we  put  upon  it.  I 
advise  you  to  take  the  stock.  It  will  be  for  your  good."  Cer- 
tain refiners  objected.  They  did  not  want  to  sell.  They  did 
want  to  keep  and  manage  their  business.  Mr.  Rockefeller  was 
regretful,  but  firm.  It  was  useless  to  resist,  he  told  the  hesitat- 
ng;  they  would  certainly  be  crushed  if  they  did  not  accept 
is  offer,  and  he  pointed  out  in  detail,  and  with  gentleness, 
ow  beneficent  the  scheme  really  was — preventing  the  creek 

*  See  Appendix,  Number  6.     Standard  Oil  Company's  application  for  increase  of 

Ipital  stock  to  $2,500,000  in  1872. 
[63] 


I 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

refiners  from  destroying  Cleveland,  ending  competition, 
keeping  up  the  price  of  refined  oil,  and  eliminating  specu- 
lation. Really  a  wonderful  contrivance  for  the  good  of  the 
oil  business. 

That  such  was  Mr.  Rockefeller's  argument  is  proved  by 
abundant  testimony  from  different  individuals  who  suc- 
cumbed to  the  pressure.  Mr.  Rockefeller's  own  brother,  Frank 
Rockefeller,  gave  most  definite  evidence  on  this  point  in  1876 
when  he  and  others  were  trying  to  interest  Congress  in  a 
law  regulating  interstate  commerce. 

"We  had  in  Cleveland  at  one  time  about  thirty  establish- 
ments, but  the  South  Improvement  Company  was  formed, 
and  the  Cleveland  companies  were  told  that  if  they  didn't 
sell  their  property  to  them  it  would  be  valueless,  that  there 
was  a  combination  of  railroad  and  oil  men,  that  they  would 
buy  all  they  could,  and  that  all  they  didn't  buy  would  be 
totally  valueless,  because  they  would  be  unable  to  compete 
with  the  South  Improvement  Company,  and  the  result  was 
that  out  of  thirty  there  were  only  four  or  five  that  didn't 
sell." 

"From  whom  was  that  information  received?"  asked  the 
examiner. 

"From  the  officers  of  the  Standard  Oil  Company.  They 
made  no  bones  about  it  at  all.  They  said:  'If  you  don't  sell 
your  property  to  us  it  will  be  valueless,  because  we  have  got 
advantages  with  the  railroads.'  " 

"Have  you  heard  those  gentlemen  say  what  you  have 
stated?"  Frank  Rockefeller  was  asked. 

"I  have  heard  Rockefeller  and  Flagler  say  so,"  he 
answered. 

W.  H.  Doane,  whose  evidence  on  the  first  rebates  granted 
to  the  Cleveland  trade  we  have  already  quoted,  told  the  Con- 
gressional committee  which  a  few  months  after  Mr.  Rocke- 
feller's great  coup  tried  to  find  out  what  had  happened  in 

[64] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

Cleveland:  "The  refineries  are  all  bought  up  by  the  Standard 
Oil  works;  they  were  forced  to  sell;  the  railroads  had  put 
up  the  rates  and  it  scared  them.  Men  came  to  me  and  told  me 
they  could  not  continue  their  business;  they  became  fright- 
ened and  disposed  of  their  property."  Mr.  Doane's  own 
business,  that  of  a  crude  oil  shipper,  was  entirely  ruined,  all 
of  his  customers  but  one  having  sold. 

To  this  same  committee  Mr.  Alexander,  of  Alexander,  Sco- 
field  and  Company,  gave  his  reason  for  selling: 

"There  was  a  pressure  brought  to  bear  upon  my  mind,  and  upon  almost  all  citizens 
of  Cleveland  engaged  in  the  oil  business,  to  the  effect  that  unless  we  went  into  the 
South  Improvement  Company  we  were  virtually  killed  as  refiners;  that  if  we  did  not 
sell  out  we  should  be  crushed  out.  My  partner,  Mr.  Hewitt,  had  some  negotiations 
with  parties  connected  with  the  South  Improvement  Company,  and  they  gave  us 
to  understand,  at  least  my  partner  so  represented  to  me,  that  we  should  be  crushed 
out  if  we  did  not  go  into  that  arrangement.  He  wanted  me  to  see  the  parties  myself; 
but  I  said  to  him  that  I  would  not  have  any  dealings  with  certain  parties  who  were 
in  that  company  for  any  purpose,  and  I  never  did.  We  sold  at  a  sacrifice,  and  we 
were  obliged  to.  There  was  only  one  buyer  in  the  market,  and  we  had  to  sell  on  their 
terms  or  be  crushed  out,  as  it  was  represented  to  us.  It  was  stated  that  they  had  a  con- 
tract with  railroads  by  which  they  could  run  us  into  the  ground  if  they  pleased.  After 
learning  what  the  arrangements  were  I  felt  as  if,  rather  than  fight  such  a  monopoly, 
I  would  withdraw  from  the  business,  even  at  a  sacrifice.  I  think  we  received  about 
forty  or  forty-five  cents  on  the  dollar  on  the  valuation  which  we  placed  upon  our 
refinery.  We  had  spent  over  #50,000  on  our  works  during  the  past  year,  which  was 
nearly  all  that  we  received.  We  had  paid  out  #60,000  or  #70,000  before  that;  we  con- 
sidered our  works  at  their  cash  value  worth  seventy-five  per  cent,  of  their  cost.  Ac- 
cording to  our  valuation  our  establishment  was  worth  #150,000,  and  we  sold  it  for 
about  #65,000,  which  was  about  forty  or  forty-five  per  cent,  of  its  value.  We  sold 
to  one  of  the  members,  as  I  suppose,  of  the  South  Improvement  Company,  Mr.  Rocke- 
feller; he  is  a  director  in  that  company;  it  was  sold  in  name  to  the  Standard  Oil  Com- 
pany, of  Cleveland,  but  the  arrangements  were,  as  I  understand  it,  that  they  were 
to  put  it  into  the  South  Improvement  Company.  I  am  stating  what  my  partner  told  me; 
he  did  all  the  business;  his  statement  was  that  all  these  works  were  to  be  merged  into 
the  South  Improvement  Company.  I  never  talked  with  any  members  of  the  South 
Improvement  Company  myself  on  the  subject;  I  declined  to  have  anything  to  do 
with  them." 

[65] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Mr.  Hewitt,  the  partner  who  Mr.  Alexander  says  carrie* 
on  the  negotiations  for  the  sale  of  the  business,  appeared 
before  an  investigating  committee  of  the  New  York  Stat< 
Senate  in  1879  and  gave  his  recollections  of  what  happened. 
According  to  his  story  the  entire  oil  trade  in  Cleveland  became 
paralysed  when  it  became  known  that  the  South  Improve- 
ment Company  had  "grappled  the  entire  transportation  of 
oil  from  the  West  to  the  seaboard."  Mr.  Hewitt  went  to  see 
the  freight  agents  of  the  various  roads;  he  called  on  W.  H. 
Vanderbilt,  but  from  no  one  did  he  get  any  encouragement. 
Then  he  saw  Peter  H.  Watson  of  the  Lake  Shore  Railroad, 
the  president  of  the  company  which  was  frightening  the  trade. 
"Watson  was  non-committal,"  said  Mr.  Hewitt.  "I  got  no 
satisfaction  except,  'You  better  sell — you  better  get  clear — 
better  sell  out — no  help  for  it'  "  After  a  little  time  Mr.  Hewitt 
concluded  with  his  partners  that  there  was  indeed  "no  help 
for  it,"  and  he  went  to  see  Mr.  Rockefeller,  who  offered  him 
fifty  cents  on  the  dollar  on  the  constructive  account.  The  offer 
was  accepted.  There  was  nothing  else  to  do,  the  firm  seems  to 
have  concluded.  When  they  came  to  transfer  the  property  Mr. 
Rockefeller  urged  Mr.  Hewitt  to  take  stock  in  the  new  con- 
cern. "He  told  me,"  said  Mr.  Hewitt,  "that  it  would  be  suffi- 
cient to  take  care  of  my  family  for  all  time,  what  I  represented 
there,  and  asking  for  a  reason,  he  made  this  expression,  I 
remember:  'I  have  ways  of  making  money  that  you  know 
nothing  of/  " 

A  few  of  the  refiners  contested  before  surrendering.  Among 
these  was  Robert  Hanna,  an  uncle  of  Mark  Hanna,  of  the 
firm  of  Hanna,  Baslington  and  Company.  Mr.  Hanna  had  been 
refining  since  July,  1869.  According  to  his  own  sworn  state- 
ment he  had  made  money,  fully  sixty  per  cent,  on  his  invest- 
ment the  first  year,  and  after  that  thirty  per  cent.  Some 
time  in  February,  1872,  the  Standard  Oil  Company  asked  an 
interview  with  him  and  his  associates.  They  wanted  to  buy 

[661 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

his  works,  they  said.  "But  we  don't  want  to  sell,"  objected  Mr. 
Hanna.  "You  can  never  make  any  more  money,  in  my  judg- 
ment," said  Mr.  Rockefeller.  "You  can't  compete  with  the 
Standard.  We  have  all  the  large  refineries  now.  If  you  refuse 
to  sell,  it  will  end  in  your  being  crushed."  Hanna  and  Basling- 
ton  were  not  satisfied.  They  went  to  see  Mr.  Watson,  president 
di  the  South  Improvement  Company  and  an  officer  of  the 
Lake  Shore,  and  General  Devereux,  manager  of  the  Lake 
Shore  road.  They  were  told  that  the  Standard  had  special 
rates ;  that  it  was  useless  to  try  to  compete  with  them.  General 
Devereux  explained  to   the   gentlemen   that  the  privileges 
granted   the   Standard  were   the   legitimate   and   necessary 
idvantage  of  the  larger  shipper  over  the  smaller,  and  that  if 
rlanna,  Baslington  and  Company  could  give  the  road  as  large 
i  quantity  of  oil  as  the  Standard  did,  with  the  same  regularity, 
hey  could  have  the  same  rate.  General  Devereux  says  they 
'recognised  the  propriety"  of  his  excuse.  They  certainly  rec- 
)gnised  its  authority.  They  say  that  they  were  satisfied  they 
:ould  no  longer  get  rates  to  and  from  Cleveland  which  would 
nable  them  to  live,  and  "reluctantly"  sold  out.  It  must  have 
>een  reluctantly,  for  they  had  paid  $75,000  for  their  works, 
nd  had  made  thirty  per  cent,  a  year  on  an  average  on  their 
nvestment,  and  the  Standard  appraiser  allowed  them  $45,000. 
Truly  and  really  less  than  one-half  of  what  they  were  abso- 
utely  worth,  with  a  fair  and  honest  competition  in  the  lines 
f  transportation,"  said  Mr.  Hanna,  eight  years  later,  in  an 
ffidavit* 
Under  the  combined  threat  and  persuasion  of  the  Standard, 
rmed  with  the  South  Improvement  Company  scheme,  almost 
ie  entire  independent  oil  interest  of  .Cleveland  collapsed 
1  three  months'  time.  Of  the  twenty-six  refineries,  at  least 
venty-one  sold  out.  From  a  capacity  of  probably  not  over 
,500  barrels  of  crude  a  day,  the  Standard  Oil  Company  rose 

*  See  Appendix,  Number  7.     Affidavits  of  George  O.  Baslington. 

[  67  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

in  three  months'  time  to  one  of  10,000  barrels.  By  this 
manoeuvre  it  became  master  of  over  one-fifth  of  the  refining 
capacity  of  the  United  States.*  Its  next  individual  competitor 
was  Sone  and  Fleming,  of  New  York,  whose  capacity  was  1,700 
barrels.  The  Standard  had  a  greater  capacity  than  the  entire 
Oil  Creek  Regions,  greater  than  the  combined  New  York 
refiners.  The  transaction  by  which  it  acquired  this  power  was 
so  stealthy  that  not  even  the  best  informed  newspaper  men 
of  Cleveland  knew  what  went  on.  It  had  all  been  accom- 
plished in  accordance  with  one  of  Mr.  Rockefeller's  chief 
business  principles — "Silence  is  golden." 

While  Mr.  Rockefeller  was  working  out  the  "good  of  the 
oil  business"  in  Cleveland,  his  associates  were  busy  at  other 
points.  Charles  Lockhart  in  Pittsburg  and  W.  G.  Warden  in 
Philadelphia  were  particularly  active,  though  neither  of  them 
accomplished  any  such  sweeping  benefaction  as  Mr.  Rocke- 
feller had.  It  was  now  evident  what  the  stockholders  of  the 
South  Improvement  Company  meant  when  they  assured  the 
railroads  that  all  the  refiners  were  to  go  into  the  scheme,  that, 
as  Mr.  Warden  said,  they  "never  had  any  other  purpose  in  thei 
matter!"  A  little  more  time  and  the  great  scheme  would  be 
an  accomplished  fact.  And  then  there  fell  in  its  path  two  of 

*In  1872  the  refining  capacity  of  the  United  States  was  as  follows,  according  t( 
Henry's  "  Early  and  Later  History  of  Petroleum ' '  : 

Barrels 

Oil  Regions 9>23i 

New  York 9>79° 

Cleveland 12^732 

Pittsburg 6,090 

Philadelphia 2,061 

Baltimore 1 ,098 

Boston 3»5°° 

Erie 1,168 

Other  Points 901 

Total 46,571 

[68] 


THE  RISE  OF  THE  STANDARD  OIL  COMPANY 

those  never-to-be-foreseen  human  elements  which  so  often 
block  great  manoeuvres.  The  first  was  born  of  a  man's  anger. 
The  man  had  learned  of  the  scheme.  He  wanted  to  go  into 
it,  but  the  directors  were  suspicious  of  him.  He  had  been 
concerned  in  speculative  enterprises  and  in  dealings  with  the 
Erie  road  which  had  injured  these  directors  in  other  ways. 
They  didn't  want  him  to  have  any  of  the  advantages  of  their 
great  enterprise.  When  convinced  that  he  could  not  share  in 
the  deal,  he  took  his  revenge  by  telling  people  in  the  Oil  Re- 
gions what  was  going  on.  At  first  the  Oil  Regions  refused  to 
believe,  but  in  a  few  days  another  slip  born  of  human  weakness 
came  in  to  prove  the  rumour  true.  The  schedule  of  rates  agreed 
upon  by  the  South  Improvement  Company  and  the  railroads 
had  been  sent  to  the  freight  agent  of  the  Lake  Shore  Rail- 
road, but  no  order  had  been  given  to  put  them  in  force.  The 
freight  agent  had  a  son  on  his  death-bed.  Distracted  by  his 
sorrow,  he  left  his  office  in  charge  of  subordinates,  but  neg- 
lected to  tell  them  that  the  new  schedules  on  his  desk  were 
a  secret  compact,  whose  effectiveness  depended  upon  their 
being  held  until  all  was  complete.  On  February  26,  the  subor- 
dinates, ignorant  of  the  nature  of  the  rates,  put  them  into 
effect.  The  independent  oil  men  heard  with  amazement 
that  freight  rates  had  been  put  up  nearly  100  per  cent. 
They  needed  no  other  proof  of  the  truth  of  the  rumours  of 
conspiracy  which  were  circulating.  It  now  remained  to  be 
seen  whether  the  Oil  Regions  would  submit  to  the  South 
Improvement  Company  as  Cleveland  had  to  the  Standard  Oil 
Company.  ^tuOfadu  (> 

a*\!  — - 


5 


3  *  1    ( 


UauIo. 


fy  ^M/u    ? 


[69] 


CHAPTER   THREE 
THE  OIL  WAR   OF    1872 

RISING  IN  THE  OIL  REGIONS  AGAINST  THE  SOUTH  IMPROVEMENT  COMPANY 
—PETROLEUM  PRODUCERS'  UNION  ORGANISED— OIL  BLOCKADE  AGAINST 
MEMBERS  OF  SOUTH  IMPROVEMENT  COMPANY  AND  AGAINST  RAILROADS 
IMPLICATED— CONGRESSIONAL  INVESTIGATION  OF  1872  AND  THE  DOCU- 
MENTS IT  REVEALED— PUBLIC  DISCUSSION  AND  GENERAL  CONDEMNATION 
OF  THE  SOUTH  IMPROVEMENT  COMPANY— RAILROAD  OFFICIALS  CONFER 
WITH  COMMITTEE  FROM  PETROLEUM  PRODUCERS'  UNION— WATSON 
AND  ROCKEFELLER  REFUSED  ADMITTANCE  TO  CONFERENCE— RAILROADS 
REVOKE  CONTRACTS  WITH  SOUTH  IMPROVEMENT  COMPANY  AND  MAKE 
CONTRACT  WITH  PETROLEUM  PRODUCERS'  UNION— BLOCKADE  AGAINST 
SOUTH  IMPROVEMENT  COMPANY  LIFTED— OIL  WAR  OFFICIALLY  ENDED— 
ROCKEFELLER  CONTINUES  TO  GET  REBATES— HIS  GREAT  PLAN  STILL  A 
LIVING  PURPOSE. 

IT  was  not  until  after  the  middle  of  February,  1872,  that  the 
people  of  the  Oil  Regions  heard  anything  of  the  plan  which 
was  being  worked  out  for  their  "good."  Then  an  uneasy 
rumour  began  running  up  and  down  the  creek.  Freight  rates 
were  going  up.  Now  an  advance  in  a  man's  freight  bill  may 
ruin  his  business ;  more,  it  may  mean  the  ruin  of  a  region.  Ru- 
mour said  that  the  new  rate  meant  just  this ;  that  is,  that  it  more 
than  covered  the  margin  of  profit  in  any  branch  of  the  oil 
business.  The  railroads  were  not  going  to  apply  the  pro 
posed  tariffs  to  everybody.  They  had  agreed  to  give  to  i 
company  unheard  of  until   now— the   South   Improvemen 
Company— a  special  rate  considerably  lower  than  the  nev  . 
open  rate.  It  was  only  a  rumour  and  many  people  discredite( 
it.  Why  should  the  railroads  ruin  the  Oil  Regions  to  buil 
up  a  company  of  outsiders? 

But  facts  began  to  be  reported.  Mr.  Doane,  the  Clevelan 

[70] 


■! 


THE   OIL  WAR  OF  1872 

shipper  already  quoted,  told  how  suddenly  on  the  22d  of  Feb- 
ruary, without  notice,  his  rate  from  the  Oil  Regions  to  Cleve- 
land was  put  up  from  thirty-five  cents  a  barrel  to  sixty-five 
cents,  an  advance  of  twenty-four  dollars  on  a  carload.*  Mr. 
Josiah  Lombard  of  the  New  York  refining  firm  of  Ayres, 
Lombard  and  Company  was  buying  oil  for  his  company  at 
Oil  City.  Their  refinery  was  running  about  12,000  barrels  a 
month.  On  the  19th  of  February  the  rate  from  Oil  City  to 
Buffalo,  which  had  been  forty  cents  a  barrel,  was  raised  to 
sixty-five  cents,  and  a  few  days  later  the  rate  from  Warren 
to  New  York  was  raised  from  eighty-seven  cents  to  $2.14.  Mr. 
Lombard  was  not  aware  of  this  change  until  his  house  in  New 
York  reported  to  him  that  the  bills  for  freight  were  so  heavy 
that  they  could  not  afford  to  ship  and  wanted  to  know  what 
was  the  matter.f 

On  the  morning  of  February  26,  1872,  the  oil  men  read  in 
their  morning  papers  that  the  rise  which  had  been  threatening 
had  come;  moreover,  that  all  members  of  the  South  Improve- 
ment Company  were  exempt  from  the  advance.  At  the  news 
all  oildom  rushed  into  the  streets.  Nobody  waited  to  find  out 
his  neighbour's  opinion.  On  every  lip  there  was  but  one  word, 
and  that  was  "conspiracy."  In  the  vernacular  of  the  region, 
it  was  evident  that  "a  torpedo  was  filling  for  that  scheme." 

In  twenty-four  hours  after  the  announcement  of  the  increase 
in  freight  rates  a  mass-meeting  of  3,000  excited,  gesticulat- 
ing oil  men  was  gathered  in  the  opera  house  at  Titusville. 
Producers,  brokers,  refiners,  drillers,  pumpers  were  in  the 
crowd.  Their  temper  was  shown  by  the  mottoes  on  the  ban- 
ners which  they  carried:  "Down  with  the  conspirators" — 
"No  compromise" — "Don't  give  up  the  ship!"  Three  days 

*A  History  of  the  Rise  and  Fall  of  the  South  Improvement  Company.  Testimony 
of  W.  H.  Doane,  page  45. 

fA  History  of  the  Rise  and  Fall  of  the  South  Improvement  Company.  Testimony 
of  Josiah  Lombard,  page  57. 

[71] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

later  as  large  a  meeting  was  held  at  Oil  City,  its  temper  more 
warlike  if  possible ;  and  so  it  went.  They  organised  a  Petro- 
leum Producers7  Union,*  pledged  themselves  to  reduce  their 
production  by  starting  no  new  wells  for  sixty  days  and  by 
shutting  down  on  Sundays,  to  sell  no  oil  to  any  person  known 
to  be  in  the  South  Improvement  Company,  but  to  support  the 
creek  refiners  and  those  elsewhere  who  had  refused  to  go  into 
the  combination,  to  boycott  the  offending  railroads,  and  to 
build  lines  which  they  would  own  and  control  themselves. 
They  sent  a  committee  to  the  Legislature  asking  that  the  char- 
ter of  the  South  Improvement  Company  be  repealed,  and 
another  to  Congress  demanding  an  investigation  of  the  whole 
business  on  the  ground  that  it  was  an  interference  with  trade. 
They  ordered  that  a  history  of  the  conspiracy,  giving  the 
names  of  the  conspirators  and  the  designs  of  the  company, 
should  be  prepared,  and  30,00x5  copies  sent  to  "judges  of  all 
courts,  senators  of  the  United  States,  members  of  Congress  and 
of  State  Legislatures,  and  to  all  railroad  men  and  prominent 
business  men  of  the  country,  to  the  end  that  enemies  of  the 
freedom  of  trade  may  be  known  and  shunned  by  all  honest 


men." 


They  prepared  a  petition  ninety-three  feet  long  praying  for 
a  free  pipe-line  bill,  something  which  they  had  long  wanted, 
but  which,  so  far,  the  Pennsylvania  Railroad  had  prevented 
their  getting,  and  sent  it  by  a  committee  to  the  Legislature; 
and  for  days  they  kept  1,000  men  ready  to  march  on 
Harrisburg  at  a  moment's  notice  if  the  Legislature  showed 
signs  of  refusing  their  demands.  In  short,  for  weeks  the  whole 
body  of  oil  men  abandoned  regular  business  and  surged  from 
town  to  town  intent  on  destroying  the  "Monster,"  the  "Forty 
Thieves,"  the  "Great  Anaconda,"  as  they  called  the  myste- 
rious South  Improvement  Company.   Curiously  enough,   it 

*See  Appendix,  Number  8.     Organisation  of  the  Petroleum  Producers'  Union  of 
1872. 

[72] 


THE  OIL  WAR  OF  1872 

was  chiefly  against  the  combination  which  had  secured  the 
discrimination  from  the  railroads — not  the  railroads  which 
had  granted  it — that  their  fury  was  directed.  They  expected 
nothing  but  robbery  from  the  railroads,  they  said.  They  were 
used  to  that;  but  they  would  not  endure  it  from  men  in  their 
own  business. 

When  they  began  the  fight  the  mass  of  the  oil  men  knew 
nothing  more  of  the  South  Improvement  Company  than  its 
name  and  the  fact  that  it  had  secured  from  the  railroads 
advantages  in  rates  which  were  bound  to  ruin  all  independent 
refiners  of  oil  and  to  put  all  producers  at  its  mercy.  Their 
tempers  were  not  improved  by  the  discovery  that  it  was  a 
secret  organisation,  and  that  it  had  been  at  work  under  their 
very  eyes  for  some  weeks  without  their  knowing  it.  At  the  first 
public  meeting  this  fact  came  out,  leading  refiners  of  the 
region  relating  their  experience  with  the  "Anaconda." 
According  to  one  of  these  gentlemen,  J.  D.  Archbold — 
the  same  who  afterward  became  vice-president  of  the  Stand- 
ard Oil  Company,  which  office  he  now  holds — he  and  his 
partners  had  heard  of  the  scheme  some  months  before. 
Alarmed  by  the  rumour,  a  committee  of  independent  refiners 
had  attempted  to  investigate,  but  could  learn  nothing  until 
they  had  given  a  promise  not  to  reveal  what  was  told  them. 
When  convinced  that  a  company  had  been  formed  actually 
strong  enough  to  force  or  persuade  the  railroads  to  give  it 
special  rates  and  refuse  them  to  all  persons  outside,  Mr. 
Archbold  said  that  he  and  his  colleagues  had  gone  to  the  rail- 
way kings  to  remonstrate,  but  all  to  no  effect.  The  South 
Improvement  Company  by  some  means  had  convinced  the  rail- 
roads that  they  owned  the  Oil  Regions,  producers  and  re- 
finers both,  and  that  hereafter  no  oil  of  any  account  would 
be  shipped  except  as  they  shipped  it.  Mr.  Archbold  and 
his  partners  had  been  asked  to  join  the  company,  but  had 

Bid,  declaring  that  the  whole  business  was, .iniquitous, 
[73] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

that  they  would  fight  it  to  the  end,  and  that  in  their  fight 
they  would  have  the  backing  of  the  oil  men  as  a  whole. 
They  excused  their  silence  up  to  this  time  by  citing  the 
pledge  *  exacted  from  them  before  they  were  informed  of 
the  extent  and  nature  of  the  South  Improvement  Company. 

Naturally  the  burning  question  throughout  the  Oil  Regions, 
convinced  as  it  was  of  the  iniquity  of  the  scheme,  was,  Who 
are  the  conspirators?  Whether  the  gentlemen  concerned 
regarded  themselves  in  the  light  of  "conspirators"  or  not, 
they  seem  from  the  first  to  have  realised  that  it  would  be 
discreet  not  to  be  identified  publicly  with  the  scheme,  and 
to  have  allowed  one  name  alone  to  appear  in  all  signed  nego- 
tiations. This  was  the  name  of  the  president,  Peter  H.  Wat- 
son. However  anxious  the  members  of  the  South  Improve- 
ment Company  were  that  Mr.  Watson  should  combine  the 
honours  of  president  with  the  trials  of  scapegoat,  it  was  impos- 
sible to  keep  their  names  concealed.  The  Oil  City  Derrick, 
at  that  time  one  of  the  most  vigorous,  witty,  and  daring  news- 
papers in  the  country,  began  a  black  list  at  the  head  of  its 
editorial  columns  the  day  after  the  raise  in  freight  was 
announced,  and  it  kept  it  there  until  it  was  believed  com- 
plete. It  stood  finally  as  it  appears  on  the  opposite  page. 

This  list  was  not  exact,  but  it  was  enough  to  go  on,  and 
the  oil  blockade,  to  which  the  Petroleum  Producers'  Union 
had  pledged  itself,  was  now  enforced  against  the  firms  listed, 
and  as  far  as  possible  against  the  railroads.  All  of  these 
refineries  had  their  buyers  on  the  creek,  and  although  sev- 
eral of  them  were  young  men  generally  liked  for  their  per- 
sonal and  business  qualities,  no  mercy  was  shown  them.  The}  ' 
were  refused  oil  by  everybody,  though  they  offered  from 
seventy-five  cents  to  a  dollar  more  than  the  market  price 
They  were  ordered  at  one  meeting  "to  desist  from  theii 
nefarious  business  or  leave  the  Oil  Region,"  and  when  the) 

*  See  page  56. 

[74] 


JOHN  D.    ARCHBOLD    IN    1872 

Now  vice-president  of  the  Standard  Oil  Company.  Mr.  Archbold, 
whose  home,  in  1872,  was  in  Titusville,  Pennsylvania,  although  one  of  the 
youngest  refiners  of  the  Creek,  was  one  of  the  most  active  and  efficient  in 
breaking  up  the  South  Improvement  Company. 


If 


THE  OIL  WAR  OF  1872 

declined  they  were  invited  to  resign  from  the  oil  exchanges 

Iof  which  they  were  members.  So  strictly,  indeed,  was  the 
blockade  enforced  that  in  Cleveland  the  refineries  were 
closed  and  meetings  for  the  relief  of  the  workmen  were  held. 


THE  BLACK  LIST. 


P.  H.  WATSON,  PRE$.   S.  I.  CO. 

Char  lea  lock  hart, 

W.  P.  Logan, 

R,  S.  Waring, 

A.  W.  Best  wick, 

W.  C.  Warden, 

John  Rockefeller* 

Amasa  SCone. 

These  seven  are  given  as  the  Dlree 
tors  of  the  SouUieru  Improvement 
Company.  They  are  refiners  or  mer 
ouanls  of  petroleum 

Atlantic  &  G  t.  Western  Rail  way. 

JL.  s.  &.  in.  s.  Hallway* 

Philadelphia  A  Eric   Railway 

Pennsylvania  Central  Railway 

New  York  Central  Railway 

Erie  Railway. 


TJehold  "The  Anaconda"  in  all  his  hide- 
ous deformity! 

only  violence  at  the  opening  of  the  war  being  at  Franklin, 
where  a  quantity  of  the  oil  belonging  to  Mr.  Watson  was 
run  on  the  ground. 

The  sudden  uprising  of  the  Oil  Regions  against  the  South 
Improvement  Company  did  not  alarm  its  members  at  first. 
The  excitement  would  die  out,  they  told  one  another.  All 
that  they  needed  to  do  was  to  keep  quiet  and  stay  out  of  the 
oil  country.  But  the  excitement  did  not  die  out.  Indeed,  with 
every  day  it  became  more  intense  and  more  wide-spread. 
When  Mr.  Watson's  tanks  were  tapped  he  began  to  protest 

[75] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
in  letters  to  a  friend,  F.  W.  Mitchell,  a  prominent  banker 
and  oil  man  of  Franklin.  The  company  was  misunderstood, 
he  complained.  "Have  a  committee  of  leading  producers 
appointed,"  he  wrote,  "and  we  will  show  that  the  contracts 
with  the  railroads  are  as  favourable  to  the  producing  as  to 
other  interests ;  that  the  much-denounced  rebate  will  enhance 
the  price  of  oil  at  the  wells,  and  that  our  entire  plan  in 
operation  and  effect  will  promote  every  legitimate  American 
interest  in  the  oil  trade."  Mr.  Mitchell  urged  Mr.  Watson 
to  come  openly  to  the  Oil  Regions  and  meet  the  producers 
as  a  body.  A  mass-meeting  was  never  a  "deliberative  body," 
Mr.  Watson  replied,  but  if  a  few  of  the  leading  oil  men 
would  go  to  Albany  or  New  York,  or  any  place  favourable 
to  calm  investigation  and  deliberation,  and  therefore  outside 
of  the  atmosphere  of  excitement  which  enveloped  the  oil 
country,  he  would  see  them.  These  letters  were  read  to  the 
producers,  and  a  motion  to  appoint  a  committee  was  made. 
It  was  received  with  protests  and  jeers.  Mr.  Watson  was 
afraid  to  come  to  the  Oil  Regions,  they  said.  The  letters  were 
not  addressed  to  the  association,  they  were  private — an  insult 
to  the  body.  "We  are  lowering  our  dignity  to  treat  with  this 
man  Watson,"  declared  one  man.  "He  is  free  to  come  to  these 
meetings  if  he  wants  to."  "What  is  there  to  negotiate  about?" 
asked  another.  "To  open  a  negotiation  is  to  concede  that  we 
are  wrong.  Can  we  go  halves  with  these  middlemen  in  their 
swindle?"  "He  has  set  a  trap  for  us,"  declared  another.  "We 
cannot  treat  with  him  without  guilt,"  and  the  motion  was 
voted  down. 

The  stopping  of  the  oil  supply  finally  forced  the  South 
Improvement  Company  to  recognise  the  Producers'  Union 
officially  by  asking  that  a  committee  of  the  body  be  appointed 
to  confer  with  them  on  a  compromise.  The  producers  sent 
back  a  pertinent  answer.  They  believed  the  South  Improve- 
ment Company  meant  to  monopolise  the  oil  business.  If  that 

[76] 


THE  OIL  WAR  OF  1872 

was  so  they  could  not  consider  a  compromise  with  it.  If  tjhey 
were  wrong,  they  would  be  glad  to  be  enlightened,  and  they 
asked  for  information.  First:  the  charter  under  which  the 
South  Improvement  Company  was  organised.  Second:  the 
articles  of  association.  Third:  the  officers'  names.  Fourth: 
the  contracts  with  the  railroads  which  signed  them.  Fifth:  the 
general  plan  of  management.  Until  we  know  these  things, 
the  oil  men  declared,  we  can  no  more  negotiate  with  you 
than  we  could  sit  down  to  negotiate  with  a  burglar  as  to  his 
privileges  in  our  house. 

The  Producers'  Union  did  not  get  the  information  they 
asked  from  the  company  at  that  time,  but  it  was  not  long 
before  they  had  it,  and  much  more.  The  committee  which 
they  had  appointed  to  write  a  history  of  the  South  Improve- 
ment Company  reported  on  March  20,  and  in  April  the 
Congressional  Committee  appointed  at  the  insistence  of  the 
oil  men  made  its  investigation.  The  former  report  was  pub- 
lished broadcast,  and  is  readily  accessible  to-day.  The  Con- 
gressional Investigation  was  not  published  officially,  and  no 
trace  of  its  work  can  now  be  found  in  Washington,  but  while 
it  was  going  on  reports  were  made  in  the  newspapers  of  the 
Oil'Regions,  and  at  its  close  the  Producers'  Union  published 
in  Lancaster,  Pennsylvania,  a  pamphlet  called  "A  History  of 
the  Rise  and  Fall  of  the  South  Improvement  Company,"  which 
contains  the  full  testimony  taken  by  the  committee.  This  pam- 
phlet is  rare,  the  writer  never  having  been  able  to  find  a  copy 
save  in  three  or  four  private  collections.  The  most  important 
part  of  it  is  the  testimony  of  Peter  H.  Watson,  the  president, 
and  W.  G.  Warden,  the  secretary  of  the  South  Improvement 
Company.  It  was  in  these  documents  that  the  oil  men  found 

iull  justification  for  the  war  they  were  carrying  on  and 
or  the  losses  they  had  caused  themselves  and  others.  Nothi- 
ng, indeed,  could  have  been  more  damaging  to  a  corpora- 
ion  than  the  publication  of  the  charter  of  the  South  Im- 
[77] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
provement  Company.  As  its  president  told  the  Congressional 
Investigating  Committee,  when  he  was  under  examination, 
"this  charter  was  a  sort  of  clothes-horse  to  hang  a  scheme 
upon."  As  a  matter  of  fact  it  was  a  clothes-horse  big  enough 
to  hang  the  earth  upon.  It  granted  powers  practically  unlim- 
ited* There  really  was  no  exaggeration  in  the  summary  of 
its  powers  made  and  scattered  broadcast  by  the  irate  oil  men 
in  their  "History  of  the  Rise  and  Fall  of  the  South  Improve- 
ment Company" :  * 

The  South  Improvement  Company  can  own,  contract,  or  operate  any  work,  busi- 
ness, or  traffic  (save  only  banking);  may  hold  and  transfer  any  kind  of  property,  real  or 
personal;  hold  and  operate  on  any  leased  property  (oil  territory,  for  instance);  make 
any  kind  of  contract;  deal  in  stock,  securities,  and  funds;  loan  its  credit,  guarantee 
any  one's  paper;  manipulate  any  industry;  may  seize  upon  the  lands  of  other  parties 
for  railroading  or  any  other  purpose;  may  absorb  the  improvements,  property  or 
franchises  of  any  other  company,  ad  infinitum;  may  fix  the  fares,  tolls,  or  freights  to 
be  charged  on  lines  of  transit  operated  by  it,  or  on  any  business  it  gives  to  any  other 
company  or  line,  without  limit. 

Its  capital  stock  can  be  expanded  or  "watered"  at  liberty;  it  can  change  its  name 
and  location  at  pleasure;  can  go  anywhere  and  do  almost  anything.  It  is  not  a  Penn- 
sylvania corporation  only;  it  can,  so  far  as  these  enactments  are  valid,  or  are  confirmed 
by  other  Legislatures,  operate  in  any  state  or  territory;  its  directors  must  be  only 
citizens  of  the  United  States— not  necessarily  of  Pennsylvania.  It  is  responsible  to  no 
one;  its  stockholders  are  only  liable  to  the  amount  of  their  stock  in  it;  its  directors, 
when  wielding  all  the  princely  powers  of  the  corporation,  are  also  responsible  only 
to  the  amount  of  their  stock  in  it;  it  may  control  the  business  of  the  continent  and 
hold  and  transfer  millions  of  property,  and  yet  be  rotten  to  the  core.  It  is  responsible 
to  no  one;  makes  no  reports  of  its  acts  or  financial  condition;  its  records  and  delibera- 
tions are  secret;  its  capital  illimitable;  its  object  unknown.  It  can  be  here  to-day, 
to-morrow  away.  Its  domain  is  the  whole  country;  its  business  everything.  Now 
it  is  petroleum  it  grasps  and  monopolises;  next  year  it  may  be  iron,  coal,  cotton,  or 
breadstufFs.  They  are  landsmen  granted  perpetual  letters  of  marque  to  prey  upon  all 
commerce  everywhere. 

When  the  course  of  this  charter  through  the  Pennsylvania 
Legislature  came  to  be  traced,  it  was  found  to  be  devious 

*  See  Appendix,  Number  9.     Charter  of  the  South  Improvement  Company. 

[78] 


THE  OIL  WAR  OF  1872 

and  uncertain.  The  company  had  been  incorporated  in  1871, 
and  vested  with  all  the  "powers,  privileges,  duties  and  obli- 
gations" of  an  earlier  company — incorporated  in  April,  1870 
— the  Pennsylvania  Company;  both  of  them  were  children 
of  that  interesting  body  known  as  the  "Tom  Scott  Legisla- 
ture. "  The  act  incorporating  the  company  was  not  published 
until  after  the  oil  war ;  its  sponsor  was  never  known,  and 
no  votes  on  it  are  recorded.  The  origin  of  the  South  Improve- 
ment Company  has  always  remained  in  darkness.  It  was  one 
of  several  "improvement"  companies  chartered  in  Penn- 
sylvania at  about  the  same  time,  and  enjoying  the  same  com- 
mercial carte  blanche. 

Bad  as  the  charter  was  in  appearance,  the  oil  men  found 
that  the  contracts  which  the  new  company  had  made  with 
the  railroads  were  worse.  These  contracts  advanced  the  rates 
of  freight  from  the  Oil  Regions  over  100  per  cent. — an 
advance  which  more  than  covered  the  margin  of  profit  on 
their  business — but  it  was  not  the  railroad  that  got  the  greater 
part  of  this  advance;  it  was  the  South  Improvement  Com- 
pany. Not  only  did  it  ship  its  own  oil  at  fully  a  dollar  a 
barrel  cheaper  on  an  average  than  anybody  else  could,  but 
it  received  fully  a  dollar  a  barrel  "rake-off"  on  every  barrel 
its  competitors  shipped.  It  was  computed  and  admitted  by 
the  members  of  the  company  who  appeared  before  the  inves- 
tigating committee  of  Congress  that  this  discrimination  would 
have  turned  over  to  them  fully  $6,000,000  annually  on  the 
carrying  trade.  The  railroads  expected  to  receive  about  one 
and  a  half  millions  more  than  from  the  existing  rates.  That 
is,  an  additional  cost  of  about  $1.25  a  barrel  was  added  to 
crude  oil,  and  it  was  computed  that  this  would  enable  the 
refiners  to  advance  their  wholesale  price  at  least  four  cents 
a  gallon.  It  is  hardly  to  be  wondered  at  that  when  the  oil 
men  had  before  them  the  full  text  of  these  contracts  they 
refused  absolutely  to  accept  the  repeated  assertions  of  the 

[79] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

members  of  the  South  Improvement  Company  that  their 
scheme  was  intended  only  for  "the  good  of  the  oil  business." 
The  committee  of  Congress  could  not  be  persuaded  to 
believe  it  either.  "Your  success  meant  the  destruction  of 
every  refiner  who  refused  for  any  reason  to  join  your  com- 
pany, or  whom  you  did  not  care  to  have  in,  and  it  put  the 
producers  entirely  in  your  power.  It  would  make  a  monopoly 
such  as  no  set  of  men  are  fit  to  handle,"  the  chairman  of  the 
committee  declared.  Of  course  Mr.  Warden,  the  secretary 
of  the  company,  protested  again  and  again  that  they  meant 
to  take  in  all  the  refiners,  but  when  he  had  to  admit  that  the 
contracts  with  the  railroads  were  not  made  on  this  condition, 
his  protestations  met  with  little  credence.  Besides,  there  was 
the  damning  fact  that  no  refiners  had  come  in  except  those 
in  Cleveland,  and  that  they  with  one  accord  testified  that 
they  had  yielded  to  force.  Not  a  single  factory  in  either  New 
York  or  the  Oil  Regions  was  in  the  combination.  The  fact 
that  the  producers  had  never  been  approached  in  any  way 
looked  very  bad  for  the  company,  too.  Mr.  Watson  affirmed 
and  reaffirmed  before  the  committee  that  it  was  the  intention 
of  the  company  to  take  care  of  the  producers.  "It  was  an 
essential  part  of  this  contract  that  the  producers  should  join 
it,"  he  declared.  But  no  such  condition  was  embodied  in  the 
contract.  It  was  verbal  only,  and,  besides,  it  had  never  been 
submitted  to  the  producers  themselves  in  any  form  until  after 
the  trouble  in  the  Oil  Regions  began.  The  committee,  like 
the  oil  men,  insisted  that  under  the  circumstances  no  such 
verbal  understanding  was  to  be  trusted.* 

No  part  of  the  testimony  before  the  committee  made  a 
worse  impression  than  that  showing  that  the  chief  object  of 
the  combination  was  to  put  up  the  price  of  refined  oil  to 

*  See  Appendix,  Number  10.  Draft  of  contract  between  the  South  Improvement 
Company  and  producers  of  petroleum  in  the  valley  of  the  Allegheny  and  its  tribu- 
taries.    Dated  January,  1872. 

[80] 


THE  OIL  WAR  OF  1872 

the  consumer,  though  nobody  had  denied  from  the  first  that 
this  was  the  purpose.  In  a  circular,  intended  for  private  cir- 
culation, which  appeared  in  the  newspapers  about  this  time 
explaining  the  objects  of  the  South  Improvement  Company, 
this  was  made  clear: 

"The  object  of  this  combination  of  interests,"  ran  the  cir- 
cular, "is  understood  to  be  twofold:  firstly,  to  do  away,  at 
least  in  a  great  measure,  with  the  excessive  and  undue  com- 
petition now  existing  between  the  refining  interest,  by  reason 
of  there  being  a  far  greater  refining  capacity  than  is  called 
for  or  justified  by  the  existing  petroleum-consuming  require- 
ments of  the  world ;  secondly,  to  avoid  the  heretofore  undue 
competition  between  the  various  railroad  companies  trans- 
porting oil  to  the  seaboard,  by  fixing  a  uniform  rate  of 
freight,  which  it  is  thought  can  be  adhered  to  by  some  such 
arrangement  as  guaranteeing  to  each  road  some  such  per- 
centages of  the  profit  of  the  aggregate  amount  of  oil  trans- 
ported, whether  the  particular  line  carries  it  or  not.  It  is  also 
asserted  that  a  prominent  feature  of  the  combination  will  be 
to  limit  the  production  of  refined  petroleum  to  such  amounts 
as  may  serve,  in  a  great  measure,  to  do  away  with  the  serious 
periodical  depressions  in  the  article.  Is  it  also  to  be  expected 
that,  desiring  to  curtail  the  production  of  refined  petroleum 
in  this  country,  the  railroads  will  not  offer  any  additional 
facilities  for  exportation  of  the  crude  article." 

A  writer  in  the  Oil  City  Derrick,  quoted  in  the  Cleveland 
Herald,  March  2,  1872,  said:  "The  ring  pretend  that  they 
will  make  their  margin  out  of  the  consumers.  That  is,  that 
they  will  put  refined  up  to  a  figure  that  will  enable  them  to 
pay  well  for  crude.  .  .  ..  The  consumers  are  the  avowed 
victims,  since  they  must  pay  a  price  which  will  warrant  the 
ring  in  going  on  with  their  operations.  And  the  producers' 
security  for  the  price  is  a  mere  matter  of  discretion." 

Wherever  the  members  of  the  company  discussed  the  sub- 

[81] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
ject  they  put  forward  this  object  as  one  sufficient  to  justify 
the  combination.  If  refined  oil  was  put  up  everybody  in  the 
trade  would  make  more  money.  To  this  end  the  public  ought 
to  be  willing  to  pay  more. 

When  Mr.  Warden  was  under  examination  by  the  com- 
mittee the  chairman  said  to  him:  "Under  your  arrangement, 
the  public  would  have  been  put  to  an  additional  expense  of 
$7,500,000  a  year."  "What  public?"  said  Mr.  Warden.  "They 
would  have  had  to  pay  it  in  Europe."  "But  to  keep  up  the 
price  abroad  you  would  have  to  keep  up  the  price  at  home," 
said  the  chairman.  Mr.  Warden  conceded  the  point:  "You 
could  not  get  a  better  price  for  that  exported  without  having 
a  better  price  here,"  he  said.* 

Mr.  Watson  contended  that  the  price  could  be  put  up  with 
benefit  to  the  consumer.  And  when  he  was  asked  how,  he 
replied:  "By  steadying  the  trade.  You  will  notice  what  all 
those  familiar  with  this  trade  know,  that  there  are  very  rapid 
and  excessive  fluctuations  in  the  oil  market;  that  when  these 
fluctuations  take  place  the  retail  dealers  are  always  quick  to 
note  a  rise  in  price,  but  very  slow  to  note  a  fall.  Even  if 
two  dollars  a  barrel  had  been  added  to  the  price  of  oil  under  a 
steady  trade,  I  think  the  price  of  the  retail  purchaser  would  | 
not  have  been  increased.  That  increased  price  would  only 
amount  to  one  cent  a  quart  (four  cents  a  gallon),  and  I  think 
the  price  would  not  have  been  increased  to  the  retail  dealer 
because  the  fluctuations  would  have  been  avoided.  That  was 
one  object  to  be  accomplished."  f 

The  committee  were  not  convinced,  however,  that  a  scheme 
which  began  by  adding  four  cents  to  the  price  of  a  gallon 
of  oil  could  be  to  the  good  of  the  consumer.  Nor  did  any- 
thing appear  in  the  contracts  which  showed  how  the  fluctua- 
tions in  the  price  of  oil  were  to  be  avoided.  These  fluctuations' 

*See  Appendix,  Number  11.     Extracts  from  the  testimony  of  W.  G.  Warden. 
fSee  Appendix,  Number  12.     Extracts  from  the  testimony  of  Peter  H.  Watson,    j 

[82] 


THE  OIL  WAR  OF  1872 

were  due  to  the  rise  and  fall  in  the  crude  market,  and  that 
depended  on  the  amount  of  crude  coming  from  the  ground. 
The  South  Improvement  Company  might  assert  that  they 
meant  to  bring  the  producers  into  their  scheme  and  persuade 
them  to  keep  down  the  amoun/  of  production  in  the  same 
way  they  meant  to  keep  down  refined,  so  that  the  price  could 
be  kept  steadily  high,  but  they  had  nothing  to  prove  that  they 
were  sincere  in  the  intention,  nothing  to  prove  that  they  had 
thought  of  the  producer  seriously  until  the  trouble  in  the  Oil 
Regions  began.  It  looked  very  much  to  the  committee  as  if 
the  real  intention  of  the  company  was  to  keep  up  the  price  of 
refined  to  a  certain  figure  by  limiting  the  output,  and  that 
there  was  nothing  to  show  that  it  would  not  go  up  with  crude 
though  it  might  not  go  down  with  it!  Under  these  circum- 
stances it  seemed  as  if  a  fluctuating  market  which  gave  a 
moderate  average  was  better  for  the  consumer  than  the  steady 
high  price  which  Mr.  Watson  thought  so  good  for  the  pub- 
lic. Thirty-two  cents  a  gallon  was  the  ideal  price  they  had 
in  view,  though  refined  had  not  sold  for  that  since  1869,  tne 
average  price  in  1870  being  26%  and  in  1871  24.%.  The 
refiner  who  in  1871  sold  his  oil  at  24J4  cents  a  gallon  cleared 
easily  fifty-two  cents  a  barrel — a  large  profit  on  his  investment, 
— but  the  refiners  in  the  early  stages  of  this  new  industry  had 
made  much  larger  profits.  It  was  to  perpetuate  these  early 
profits  that  they  had  gone  into  the  South  Improvement 
Company. 

It  did  not  take  the  full  exposition  of  the  objects  of  the 
South  Improvement  Company,  brought  out  by  the  Congres- 
sional Investigating  Committee,  with  the  publication  of 
charters  and  contracts,  to  convince  the  country  at  large  that 
the  Oil  Regions  were  right  in  their  opposition.  From  the 
first  the  sympathy  of  the  press  and  the  people  were  with  the 
oil  men.  It  was  evident  to  everybody  that  if  the  railroads  had 
made  the  contracts  as  charged   (and  it  daily  became  more 

[83] 


\y 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

evident  they  had  done  so),  nothing  but  an  absolute  monopoly 
of  the  whole  oil  business  by  this  combination  could  result. 
It  was  robbery,  cried  the  newspapers  all  over  the  land. 
"Under  the  thin  guise  of  assisting  in  the  development  of  oil- 
refining  in  Pittsburg  and  Cleveland,"  said  the  New  York 
Tribune,  "this  corporation  has  simply  laid  its  hand  upon 
the  throat  of  the  oil  traffic  with  a  demand  to  'stand  and 
deliver.'  "  And  if  this  could  be  done  in  the  oil  business,  what 
was  to  prevent  its  being  done  in  any  other  industry?  Why 
should  not  a  company  be  formed  to  control  wheat  or  beef 
or  iron  or  steel,  as  well  as  oil?  If  the  railroads  would  do  this 
for  one  company,  why  not  for  another?  The  South  Improve- 
ment Company,  men  agreed,  was  a  menace  to  the  free  trade 
of  the  country.  If  the  oil  men  yielded  now,  all  industries 
must  suffer  from  their  weakness.  The  railroads  must  be 
taught  a  lesson  as  well  as  would-be  monopolists.    / 

The  oil  men  had  no  thought  of  yielding.  With  every  day 
of  the  war  their  backbone  grew  stiffen  The  men  were  calmer, 
too,  for  their  resistance  had  found  a  ground  which  seemed 
impregnable  to  them,  and  arguments  against  the  South  Im- 
provement  Company  now  took  the  place  of  denunciations. 
On  all  sides  men  said,  This  is  a  transportation  question,  and  ; 
now  is  the  time  to  put  an  end  once  and  forever  to  the  rebates. 
The  sentiment  against  discrimination  on  account  of  amount 
of  freight  or  for  any  other  reason  had  been  strong  in  the 
country  since  its  beginning,  and  it  now  crystallised  imme- 
diately.  The  country  so  buzzed  with  discussion  on  the  duties 
of  the  railroads  that  reporters  sent  from  the  Eastern  news- 
papers commented  on  it.  Nothing  was  commoner,  indeed,  on 
the  trains  which  ran  the  length  of  the  region  and  were  its 
real  forums,  than  to  hear  a  man  explaining  that  the  railways 
derived  their  existence  and  power  from  the  people,  that  theii  j 
charters  were  contracts  with  the  people,  that  a  fundamental  | 
provision  of  these  contracts  was  that  there  should  be  no  dis- 

[84] 


THE  OIL  WAR  OF  1872 

criminating  in  favour  of  one  person  or  one  town,  that  such  a 
discrimination  was  a  violation  of  charter,  that  therefore  the 
South  Improvement  Company  was  founded  on  fraud,  and  the* 
courts  must  dissolve  it  if  the  railways  did  not  abandon  it.  The 
Petroleum  Producers'  Union  which  had  been  formed  to 
grapple  with  the  "Monster"  actually  demanded  interstate 
regulation,  for  in  a  circular  sent  out  to  newspapers  and 
boards  of  trade  asking  their  aid  against  the  conspiracy  they 
included  this  paragraph:  "We  urge  you  to  exert  all  your 
influence  with  your  representatives  in  Congress  to  support 
such  measures  offered  there  as  will  prohibit  for  all  future 
time  any  monopoly  of  railroads  or  other  transportation  com- 
panies from  laying  embargoes  upon  the  trade  between  states 
by  a  system  of  excessive  freights  or  unjust  discrimination 
against  buyers  or  shippers  in  any  trade  by  the  allowance  of 
rebates  or  drawbacks  to  any  persons  whatever.  This  is  a  mat- 
ter of  national  importance,  and  only  the  most  decided  action 
can  protect  you  and  us  from  the  scheming  strength  of  these 
monopolies." 

How  the  whole  question  appeared  to  an  intelligent  oil 
man,  one,  too,  who  had  had  the  courage  to  resist  in  the  attack 
on  the  trade  in  Cleveland,  and  who  still  was  master  of  his 
own  refinery,  is  shown  by  the  following  letter  to  the  Cleve- 
land Herald: 

Eds.  Herald:  As  I  understand,  the  financial  success  of  this  South  Improvement 
Company  is  based  upon  contracts  made  with  the  officers  (either  individually  or  other- 
wise) of  all  the  railroads  leading  out  of  the  Oil  Region,  by  which  they  (the  South  Im- 
provement Company)  receive  as  a  draw-back  certain  excess  of  freights,  not  only  on 
every  barrel  of  oil  shipped  out  of  the  Oil  Regions  by  or  to  themselves,  but  also  on  every 
barrel  of  oil  shipped  out  of  the  Oil  Regions  by  or  to  other  refiners,  or  dealers,  or  con- 
sumers. 

The  first  advance  in  freights  to  Cleveland  has  already  been  made,  viz.:  on  crude 
oil,  from  forty  cents  to  sixty-five  cents  per  barrel.  This  seemingly  slight  advance  has 
already  caused  one  party  that  I  know  of  to  pay  an  excess  of  over  $2,000.  Other  firms 
have  paid  larger  or  smaller  sums,  according  to  the  quantity  of  oil  they  were  compelled 

[8s] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
to  have.     This  excess,  we  suppose,  goes  directly  to  swell  the  profits  of  the  South  Im- 
provement Company. 

This  is  only  the  beginning.  The  whole  extent  of  the  evil  that  may  be  done  to  pro- 
ducers, refiners,  dealers  and  consumers,  and  to  the  public  generally,  if  this  cor- 
poration— or  rather  combination  of  corporations — is  successful,  is  so  deep  and  varied 
and  far  reaching,  that  it  cannot  be  fully  comprehended  and  I  will  not  attempt  it  in 
detail,  but  only  suggest  a  few  inquiries. 

Where  will  be  their  limits  ? 

How  high  will  they  advance  freights  ? 

How  low  will  they  force  the  price  of  crude  ? 

How  high  refined  ? 

Will  they  adopt  a  liberal  policy  for  producers,  or  will  they  destroy  their  interests 
and  crush  out  the  oil  production  entirely  ?  Will  they  be  liberal  with  dealers  and  con- 
sumers and  adopt  uniform  rules  with  steady  prices,  or  will  they  take  advantage  of 
times  and  circumstances  and  force  ruinous  corners  upon  the  trade  ? 

These  and  many  other  questions  are  pertinent,  for  clearly  if  they  can  control  the 
shipment  they  can  control  the  price  of  oil,  and  if  they  can  control  the  price  to  the 
extent  of  twenty-five  cents  per  barrel,  they  can  control  it  entirely.  If  they  can  control 
it  entirely,  where  will  be  their  limit  ?  Who  will  dictate  a  line  of  policy  to  them  ?  And 
may  not  one  of  the  greatest  and  most  important  industries  of  this  country  be  destroyed 
and  hundreds  of  thousands  of  business  men  be  made  bankrupt  if  this  combination  is 
successful  and  has  the  disposition  to  work  ruin  ?  I  do  not  say  that  I  think  they  will 
work  ruin.  They  undoubtedly  will  attempt  to  make  all  the  money  they  can  and  will 
pursue  such  a  policy  as  in  their  judgment  will  bring  them  the  utmost  amount  of 
profits,  regardless  of  consequences,  but  what  that  policy  will  be,  of  course,  we  can 
•not  judge. 

It  is  understood  that  the  parties  to  this  combination  excuse  themselves  and  their 
action  before  the  public  by  reciting  the  undoubted  facts  in  the  case.  They  are  these: 
that  the  refining  of  oil  as  a  business  has  been  of  late  and  is  now  overdone;  that  the 
capacity  for  refining  petroleum  in  this  country  exceeds  the  production  in  the  ratio 
of  three  barrels  to  one;  that  the  railroads  have  reduced  freights  to  the  lowest  extreme, 
and  were  even  losing  money;  that  refiners,  in  spite  of  all  their  efforts,  could  not  earn 
their  running  expenses;  that  the  special  interests  of  Cleveland  as  a  refining  point  were 
in  danger  of  being  lost;  and  that  this  great  business  might  go  to  other  points,  and 
the  millions  of  dollars  in  refining  property  here  be  sacrificed,  and  thousands  of  men 
thrown  out  of  employment;  that  real  estate  would  depreciate,  and  that  many  other 
collateral  troubles  connected  with  the  loss  of  this  business  would  follow;  and  that 
now,  by  the  consummation  of  the  plans  of  this  monopoly,  all  these  evils  will  be 
avoided. 

In  answer  to  this — assuming  that  the  refining  interest  of  Cleveland  is  a  unit  in 

[86] 


THE  OIL  WAR  OF  1872 

this  corporation,  that  of  Pittsburg  another,  that  of  New  York  another,  and  that  of 
Philadelphia  another — it  follows  that  it  is  immaterial  to  the  stockholders  of  the  "South 
Improvement  Company"  whether  the  oil  produced  at  the  Oil  Regions  is  refined  by  them 
at  their  works  in  Cleveland,  or  at  Pittsburg,  or  in  New  York,  or  in  Philadelphia.  It 
would  not  affect  their  dividends  at  all,  provided  they  refined  the  oil  at  the  cheapest 
point  for  them  to  do  so.  That  place  might  be  Cleveland;  it  might  be  Pittsburg,  or  it 
might  not  be  either  of  them;  but  it  might  be  New  York  or  Philadelphia.  Therefore, 
so  long  as  it  is  for  the  pecuniary  advantage  of  this  combination  to  refine  at  Cleveland 
they  may  do  so,  but  no  longer,  and  should  it  be  for  the  interest  of  the  combination 
to  discontinue  their  works  at  Cleveland,  what  would  become  of  the  oil-refining  interest 
at  this  point  ?  That  question  everyone  can  answer.  Therefore  I  see  little  weight  to 
the  argument  used  that  this  monopoly  is  for  the  benefit  of  Cleveland.  Hence,  I  do 
not  consider  the  special  danger  to  Cleveland  by  any  means  as  averted. 

But  without  discussing  this  position,  its  advantages  or  disadvantages,  as  an  oil- 
refining  center — for  it  has  both  in  a  marked  degree — on  general  principles  I  will 
assert  that  the  laws  of  business  and  manufacturing  interests,  like  the  laws  of  supply 
and  demand,  are  unchangeable,  and  that  a  prosperity  such  as  this  monopoly  would 
bring  us  is  a  forced  prosperity,  consequently  not  permanent,  but  temporary  and 
fictitious  in  character,  and  damaging  in  its  ultimate  results;  and  more  than  all  this, 
if  the  refining  prosperity  of  Cleveland  could  be  re-established  permanently  by  means 
of  the  success  of  this  monopoly,  we  could  not  afford  to  accept  it  at  the  cost  proposed, 
viz.,  that  of  enriching  ourselves  at  the  expense  of  those  who  are  weaker,  but  are  in 
power. 

We  have  just  refused  to  build  an  opera-house  because  we  should,  by  using  the 
only  means  we  could  command  to  do  so,  compromise  our  morality.  How  much  more 
emphatically  should  we  refuse  to  accept  any  benefits  to  our  city  which  have  their 
origin  in  unmitigated  fraud!  In  the  opera-house  instance  just  cited  the  managers 
use  no  compulsion,  no  unwilling  man  was  to  be  forced  by  them  to  buy  a  ticket  and  take 
his  chances;  but  the  South  Improvement  Company  force  every  producer  to  take  a 
less  price  for  his  oil  without  rendering  him  an  equivalent. 

They  force  every  refiner  who  is  in  their  way  to  prosecute  his  business  against  them 
as  competitors  at  fearful  odds,  and  perhaps  at  the  expense  of  a  royalty  on  every  barrel; 
or  to  sell  his  works  and  abandon  his  business  to  the  South  Improvement  Company 
at  any  paltry  price  they  may  dictate. 

They  also  force  every  consumer  of  oil  on  this  broad  continent,  after  paying  all 

»e  legitimate  cost  of  producing,  refining,  and  transportation  on  oil,  to  pay  them  also 
1  additional  tribute — for  what  ?  Absolutely  nothing. 
The  railroad  companies   derive  their  existence  and  power  to  act  under  charters 
granted  them  by  the  citizens  (through  their  Legislatures)  of  the  several  states  in  which 
they  exist.     This  charter  is  a  contract  made  by  and  between  the  citizens  of  the  one 


- 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

part  and  the  railroad  company  on  the  other,  and  both  parties  bind  themselves  alike 
to  the  faithful  performance  of  the  conditions  of  the  contract.  One  of  the  funda- 
mental provisions  of  this  contract  is  that  there  shall  be  no  discrimination  shown  to 
any  individuals,  or  body  of  individuals,  as  to  facilities  or  privileges  of  doing  business 
with  such  railroad  company;  on  the  contrary,  the  railroad  company  is  expressly  required 
in  all  cases  to  charge  uniform  rates  for  the  transportation  of  freight  and  passengers. 

They  must,  if  desired,  carry  the  freight  for  A  that  they  do  for  B,  AND  ALWAYS 
AT  THE  SAME  PRICE.  Any  deviation  from  this  stipulated  condition  is  a  wilful  and 
fraudulent  violation  of  their  contract.  If  it  is  by  means  of  such  violations  of  contracts 
on  the  part  of  the  several  railroad  companies  connected  with  them  that  the  South 
Improvement  Company  expects  success,  then  the  whole  gigantic  STRUCTURE  IS 
ESTABLISHED  UPON  FRAUD  AS  A  BASIS,  AND  IT  OUGHT  TO  COME 
DOWN.  Very  respectfully, 

Cleveland,  Ohio,  March  5,  1872.  F.  M.  Backus. 

The  oil  men  now  met  the  very  plausible  reasons  given  by 
the  members  of  the  company  for  their  combination  more 
intelligently  than  at  first.  There  were  grave  abuses  in  the 
business,  they  admitted;  there  was  too  great  refining  capacity; 
but  this  they  argued  was  a  natural  development  in  a  new 
business  whose  growth  had  been  extraordinary  and  whose 
limits  were  by  no  means  defined.  Time  and  experience  would 
regulate  it.  Give  the  refiners  open  and  regular  freights,  with 
no  favours  to  any  one,  and  the  stronger  and  better  equipped 
would  live,  the  others  die — but  give  all  a  chance.  In  fact, 
time  and  energy  would  regulate  all  the  evils  of  which  they 
complained  if  there  were  fair  play. 

The  oil  men  were  not  only  encouraged  by  public  opinion 
and  by  getting  their  minds  clear  on  the  merits  of  their  case; 
they  were  upheld  by  repeated  proofs  of  aid  from  all  sides; 
even  the  women  of  the  region  were  asking  what  they  could 
do,  and  were  offering  to  wear  their  "black  velvet  bonnets"  all 
summer  if  necessary.  Solid  support  came  from  the  inde- 
pendent refiners  and  shippers  in  other  parts  of  the  country 
who  were  offering  to  stand  in  with  them  in  their  contest. 
New  York  was  already  one  of  the  chief  refining  centres  of 

[88] 


HENRY   H.    ROGERS    IN    1872 

Now  President  of  the  National  Transit  Company  and  a  director  of  the 
Standard  Oil  Company.  The  opposition  to  the  South  Improvement  Company 
among  the  New  York  refiners  was  led  by  Mr.  Rogers. 


THE  OIL  WAR  OF  1872 

the  country,  and  the  South  Improvement  Company  had  left 
it  entirely  out  of  its  combination.  As  incensed  as  the  creek 
itself,  the  New  York  interests  formed  an  association,  and 
about  the  middle  of  March  sent  a  committee  of  three,  with 
H.  H.  Rogers,  of  Charles  Pratt  and  Company,  at  its  head,  to 
Oil  City,  to  consult  with  the  Producers'  Union.  Their  arrival 
in  the  Oil  Regions  was  a  matter  of  great  satisfaction.  What 
made  the  oil  men  most  exultant,  however,  was  their  growing 
belief  that  the  railroads — the  crux  of  the  whole  scheme — were 
weakening. 

However  fair  the  great  scheme  may  have  appeared  to  the 
railroad  kings  in  the  privacy  of  the  council  chamber,  it  began 
to  look  dark  as  soon  as  it  was  dragged  into  the  open,  and  signs 
of  a  scuttle  soon  appeared.  General  G.  B.  McClellan,  presi-i 
dent  of  the  Atlantic  and  Great  Western,  sent  to  the  very  first 
mass-meeting  this  telegram: 

New  York,  February  27,  1872. 
Neither  the  Atlantic  and  Great  Western,  nor  any  of  its  officers,  are  interested  in  the 
South  Improvement  Company.     Of  course  the  policy  of  the  road  is  to  accommodate 
the  petroleum  interest. 

G.  B.  McClellan. 

A  great  applause  was  started,  only  to  be  stopped  by  the 
hisses  of  a  group  whose  spokesman  read  the  following: 

Contract  with  South  Improvement  Company  signed  by  George  B.  McClellan,  presi- 
dent for  the  Atlantic  and  Great  Western  Railroad.  I  only  signed  it  after  it  was 
signed  by  all  the  other  parties. 

Jay  Gould. 

The  railroads  tried  in  various  ways  to  appease  the  oil  men. 
They  did  not  enforce  the  new  rates.  They  had  signed  the  con- 
tracts, they  declared,  only  after  the  South  Improvement  Com- 
pany had  assured  them  that  all  the  refineries  and  producers 
were  to  be  taken  in.  Indeed,  they  seem  to  have  realised  within 
a  fortnight  that  the  scheme  was  doomed,  and  to  have  been 
quite  ready  to  meet  cordially  a  committee  of  oil  men  which 

[89] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

went  East  to  demand  that  the  railroads  revoke  their  contracts 
with  the  South  Improvement  Company.  This  committee, 
which  was  composed  of  twelve  persons,  three  of  them  being 
the  New  York  representatives  already  mentioned,  began  its 
work  by  an  interview  with  Colonel  Scott  at  the  Colonial 
Hotel  in  Philadelphia.  With  evident  pride  the  committee 
wrote  back  to  the  Producers'  Union:  "Mr.  Scott,  differing 
in  this  respect  from  the  railroad  representatives  whom  we 
afterwards  met,  notified  us  that  he  would  call  upon  us  at  our 
hotel."  An  interesting  account  of  their  interview  was  given 
to  the  Hepburn  Committee  in  1879  by  W.  T.  Scheide,  one 
of  the  number: 


We  saw  Mr.  Scott  on  the  18th  of  March,  1872,  in  Philadelphia,  and  he  said  to  us 
that  he  was  very  much  surprised  to  hear  of  this  agitation  in  the  Oil  Regions;  that  the 
object  of  the  railroads  in  making  this  contract  with  the  South  Improvement  Company 
was  to  obtain  an  evener  to  pool  the  freight — pool  the  oil  freights  among  the  different 
roads;  that  they  had  been  cutting  each  other  on  oil  freights  for  a  number  of  years,  and 
had  not  made  any  money  out  of  it,  although  it  was  a  freight  they  should  have  made 
money  from;  that  they  had  endeavoured  to  make  an  arrangement  among  themselves, 
but  had  always  failed;  he  said  that  they  supposed  that  the  gentlemen  representing 
the  South  Improvement  Company  represented  the  petroleum  trade,  but  as  he  was 
now  convinced  they  did  not,  he  would  be  very  glad  to  make  an  arrangement  with  this 
committee,  who  undoubtedly  did  represent  the  petroleum  trade;  the  committee  told 
him  that  they  could  not  make  any  such  contract;  that  they  had  no  legal  authority 
to  do  so;  he  said  that  could  be  easily  fixed,  because  the  Legislature  was  then  in  session, 
and  by  going  to  Harrisburg  a  charter  could  be  obtained  in  a  very  few  days;  the  com- 
mittee still  said  that  they  would  not  agree  to  any  such  arrangement,  that  they  did 
not  think  the  South  Improvement  Company's  contract  was  a  good  one,  and  they  were 
instructed  to  have  it  broken,  and  so  they  did  not  feel  that  they  could  accept  a  similar 
one,  even  if  they  had  the  power. 

Leaving  Colonel   Scott  the  committee  went  on  to  New 
York,  where  they  stayed  for  about  a  week,  closely  watched  by] 
the  newspapers,  all  of  which  treated  the  "Oil  War"  as  a  I 
national  affair.  Their  first  interview  of  importance  in  New! 

[90] 


THE  OIL  WAR  OF  1872 

York  was  with  Commodore  Vanderbilt,  who  said  to  them 
very  frankly  at  the  beginning  of  their  talk:  "I  told  Billy 
(W.  H.  Vanderbilt)  not  to  have  anything  to  do  with  that 
scheme."  The  committee  in  its  report  said  that  the  Commo- 
dore fully  agreed  with  them  upon  the  justice  of  their  claims, 
and  frequently  asserted  his  objections  to  any  combination  seek- 
ing a  monopoly  of  other  men's  property  and  interests.  He 
told  them  that  if  what  they  asked  was  that  the  railroads  should 
fix  a  tariff  which,  while  giving  them  a  paying  rate,  would 
secure  the  oil  men  against  drawbacks,  rebates,  or  variations  in 
the  tariff,  he  would  willingly  co-operate.  The  Commodore 
ended  his  amiable  concessions  by  reading  the  committee  a  let- 
ter just  received  from  the  South  Improvement  Company  offer- 
ing to  co-operate  with  the  producers  and  refiners  or  to  com- 
promise existing  differences.  The  oil  men  told  the  Commodore 
emphatically  that  they  would  not  treat  with  the  South 
Improvement  Company  or  with  anyone  interested  in  it  nor 
would  they  recognise  its  existence.  And  this  stand  they  kept 
throughout  their  negotiations  though  repeated  efforts  were 
made  by  the  railroad  men,  particularly  those  of  the  Central 
system,  to  persuade  them  to  a  compromise. 

At  the  meeting  with  the  officials  of  the  Erie  and  the 
Atlantic  and  Great  Western  the  committee  was  incensed  by 
being  offered  a  contract  similar  to  that  of  the  South  Improve- 
ment Company — on  consideration  that  the  original  be  allowed 
to  stand.  It  seemed  impossible  to  the  railroad  men  that  the  oil 
men  really  meant  what  they  said  and  would  make  no  terms 
save  on  the  basis  of  no  discriminations  of  any  kind  to  anybody. 
They  evidently  believed  that  if  the  committee  had  a  chance 
to  sign  a  contract  as  profitable  as  that  of  the  South  Improve- 

F™"t  Company,  all  their  fair  talk  of  "fair  play" — "the  duty 
le  common  carrier" — "equal  chance  to  all  in  transporta- 
■ — would  at  once  evaporate.  They  failed  utterly  at  first 
Dmprehend  that  the  Oil  War  of  1872  was  an  uprising 
... 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

against  an  injustice,  and  that  the  moral  wrong  of  the  thing 
had  taken  so  deep  a  hold  of  the  oil  country  that  the  people 
as  a  whole  had  combined  to  restore  right.  General  McClellan 
of  the  Atlantic  and  Great  Western  and  Mr.  Diven,  one  of  the 
Erie's  directors,  were  the  only  ones  who  gave  the  committee 
any  support  in  their  position. 

The  final  all-important  conference  with  the  railroad  men 
was  held  on  March  25,  at  the  Erie  offices.  Horace  Clark, 
president  of  the  Lake  Shore  and  Michigan  Southern  Rail- 
road, was  chairman  of  this  meeting,  and,  according  to  H.  H. 
Rogers'  testimony  before  the  Hepburn  Committee,  in  1879, 
there  were  present,  besides  the  oil  men,  Colonel  Scott,  General 
McClellan,  Director  Diven,  William  H.  Vanderbilt,  Mr. 
Stebbins,  and  George  Hall.  The  meeting  had  not  been  long  in 
session  before  Mr.  Watson,  president  of  the  South  Improve- 
ment Company,  and  John  D.  Rockefeller  presented  them- 
selves for  admission.  Up  to  this  time  Mr.  Rockefeller  had 
kept  well  out  of  sight  in  the  affair.  He  had  given  no  inter- 
views, offered  no  explanations.  He  had  allowed  the  president 
of  the  company  to  wrestle  with  the  excitement  in  his  own  way, 
but  things  were  now  in  such  critical  shape  that  he  came  for- 
ward in  a  last  attempt  to  save  the  organisation  by  which  he  had 
been  able  to  concentrate  in  his  own  hands  the  refining  inter- 
ests of  Cleveland.  With  Mr.  Watson  he  knocked  for  admis- 
sion to  the  council  going  on  in  the  Erie  offices.  The  oil  men 
flatly  refused  to  let  them  in.  A  dramatic  scene  followed,  Mr. 
Clark,  the  chairman,  protesting  in  agitated  tones  against  shut- 
ting out  his  "life-long  friend,  Watson."  The  oil  men  were 
obdurate.  They  would  have  nothing  to  do  with  anybody  con- 
cerned with  the  South  Improvement  Company.  So  determined 
were  they  that  although  Mr.  Watson  came  in  he  was  obliged 
at  once  to  withdraw.  A  Times  reporter  who  witnessed  the 
little  scene  between  the  two  supporters  of  the  tottering  com- 
pany   after  its   president  was   turned   out  of   the   meeting 

[92] 


THE  OIL  WAR  OF  1872 

remarked  sympathetically  that  Mr.   Rockefeller  soon  went 
away,  "looking  pretty  blue." 

The  acquiescence  of  the  "railroad  kings"  in  the  refusal  of 
the  oil  men  to  recognise  representatives  of  the  South  Improve- 
ment Company  was  followed  by  an  unwilling  promise  to  break 
the  contracts  with  the  company.  Another  strong  effort  was 
made  to  persuade  the  independents  to  make  the  same  con- 
tracts on  condition  that  they  shipped  as  much  oil,  but  they 
would  not  hear  of  it.  They  demanded  open  rates,  with  no 
rebates  to  anyone.  Horace  Clark  and  W.  H.  Vanderbilt  par- 
ticularly stuck  for  this  arrangement.  Their  opposition  to  the  oil 
men's  position  was  so  strong  that  the  latter  in  reporting  it  to 

I  he  Union  said:  "We  feel  it  proper  to  say  that  we  are  in  no 
rise  indebted  to  these  gentlemen  for  any  courtesy  or  con- 
ideration  received  at  their  hands."  So  well  did  the  committee 
fight  its  battle  and  so  strongly  were  they  supported  by  the 
New  York  refiners  that  the  railroads  were  finally  obliged  to 
consent  to  revoke  the  contracts  and  to  make  a  new  one  embody- 
ing the  views  of  the  Oil  Regions.  The  contract  finally  signed 
at  this  meeting  by  H.  F.  Clark  for  the  Lake  Shore  road, 
O.  H.  P.  Archer  for  the  Erie,  W.  H.  Vanderbilt  for  the 
Central,  George  B.  McClellan  for  the  Atlantic  and  Great 
Western,  and  Thomas  A.  Scott  for  the  Pennsylvania,  agreed 
that  all  shipping  of  oil  should  be  made  on  "a  basis  of  perfect 
equality  to  all  shippers,  producers,  and  refiners,  and  that  no 
rebates,  drawbacks,  or  other  arrangements  of  any  character 
shall  be  made  or  allowed  that  will  give  any  party  the  slightest 
difference  in  rates  or  discriminations  of  any  character  what- 
ever." *  It  was  also  agreed  that  the  rates  should  not  be  liable 
I  to  change  either  for  increase  or  decrease  without  first  giving 
William  Hasson,  president  of  the  Producers'  Union,  at  least 
ninety  days'  notice. 
The  same  rate  was  put  on  refined  oil  from  Cleveland,  Pitts- 
*  See  Appendix,  Number  13.  Contract  of  March  25,  1872. 
[93] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

burg  and  the  creek,  to  Eastern  shipping  points ;  that  is,  M 
Rockefeller  could  send  his  oil  from  Cleveland  to  New  York 
at  $1.50  per  barrel;  so  could  his  associates  in  Pittsburg;  and 
this  was  what  it  cost  the  refiner  on  the  creek;  but  the  latter 
had  this  advantage:  he  was  at  the  wells.  Mr.  Rockefeller  and 
his  Pittsburg  allies  were  miles  away,  and  it  cost  them,  by  the 
new  contract,  fifty  cents  to  get  a  barrel  of  crude  to  their 
works.  The  Oil  Regions  meant  that  geographical  position 
should  count,  that  the  advantages  Mr.  Rockefeller  had  by  his 
command  of  the  Western  market  and  by  his  access  to  a  cheap 
Eastward  waterway  should  be  considered  as  well  as  their  own 
position  beside  the  raw  product. 

This  contract  was  the  first  effective  thrust  into  the  great 
bubble.  Others  followed  in  quick  succession.  On  the  28th  the 
railroads  officially  annulled  their  contracts  with  the  company. 
About  the  same  time  the  Pennsylvania  Legislature  repealed 
the  charter.  On  March  30  the  committee  of  oil  men  sent  to 
Washington  to  be  present  during  the  Congressional  Investiga- 
tion, now  about  to  begin,  spent  an  hour  with  President  Grant. 
They  wired  home  that  on  their  departure  he  said:  "Gentle- 
men, I  have  noticed  the  progress  of  monopolies,  and  have  long 
been  convinced  that  the  national  government  would  have 
to  interfere  and  protect  the  people  against  them."  The  Presi- 
dent and  the  members  of  Congress  of  both  parties  continued 
to  show  interest  in  the  investigation,  and  there  was  little  or 
no  dissent  from  the  final  judgment  of  the  committee,  given 
early  in  May,  that  the  South  Improvement  Company  was  the 
"most  gigantic  and  daring  conspiracy"  a  free  country  had 
ever  seen.  This  decision  finished  the  work.  The  "Monster" 
was  slain,  the  Oil  Regions  proclaimed  exultantly. 

And  now  came  the  question,  What  should  they  do  about  the 
blockade  established  against  the  members  of  the  South 
Improvement  Company?  The  railroads  they  had  forgiven; 
should  they  forgive  the  members  of  the  South  Improvement 

[94] 


. 


THE  OIL  WAR  OF  1872 

Company?  This  question  came  up  immediately  on  the  repeal 
of  the  charter.  The  first  severe  test  to  which  their  temper  was 
put  was  early  in  April,  when  the  Fisher  Brothers,  a  firm  of  Oil 
City  brokers,  sold  some  20,000  barrels  of  oil  to  the  Standard 
Oil  Company.  The  moment  the  sale  was  noised  a  perfect 
uproar  burst  forth.  Indignant  telegrams  came  from  every 
direction  condemning  the  brokers.  "Betrayal,"  "infamy," 
"mercenary  achievement,"  "the  most  unkindest  cut  of  all," 
was  the  gist  of  them.  From  New  York,  Porter  and  Archbold 
telegraphed  annulling  all  their  contracts  with  the  guilty 
brokers.  The  Oil  Exchange  passed  votes  of  censure,  and  the 
Producers'  Union  turned  them  out.  A  few  days  later  it  was 
learned  that  a  dealer  on  the  creek  was  preparing  to  ship  5,000 
barrels  to  the  same  firm.  A  mob  gathered  about  the  cars  and 
refused  to  let  them  leave.  It  was  only  by  stationing  a  strong 
guard  that  the  destruction  of  the  oil  was  prevented. 

But  something  had  to  be  done.  The  cooler  heads  argued 
that  the  blockade,  which  had  lasted  now  forty  days,  and  from 
which  the  region  had  of  course  suffered  enormous  loss,  should 
be  entirely  lifted.  The  objects  for  which  it  had  been  established 
had  been  accomplished — that  is,  the  South  Improvement 
Company  had  been  destroyed — now  let  free  trade  be  estab- 
lished. If  anybody  wanted  to  sell  to  "conspirators,"  it  was  his 
lookout.  A  long  and  excited  meeting  of  men  from  the  entire 
oil  country  was  held  at  Oil  City  to  discuss  the  question. 

The  president  of  the  Petroleum  Producers'  Union,  Captain 
William  Hasson,  in  anticipation  of  the  meeting,  had  sent  to 
the  officers  of  all  the  railroads  which  had  been  parties  to  the 
South  Improvement  Company,  the  following  telegram: 

Office  Petroleum  Producers'  Union, 

Oil  City,  Pennsylvania,  April  4,  1872. 
We  are  informed  by  parties  known  as  members  of  the  South  Improvement  Com- 
pany, now  representing  the  Standard  Oil  Company,  who  are  in  the  market  over- 
bidding other  shippers,  that  all  contracts  between  the  railroad  companies  and  South 

[95] 


V 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
Improvement  and  Standard  Companies  are  cancelled.     Will  you  please  give  us  official 
notice  whether  such  contracts  are  cancelled  or  not  t   The  people  in  mass-meeting 
assembled  have  instructed  the  executive  committee  not  to  sell  or  ship  any  oil  to  these 
parties  until  we  receive  such  notice.     Please  answer  at  once,  as  we  fear  violence  and 

destruction  of  property. 

Signed  William  Hasson,  President. 

General  McClellan,  Horace  F.  Clark,  Thomas  A.  Scott,  and 
W.  H.  Vanderbilt  all  sent  emphatic  telegrams  in  reply,  assert- 
ing that  the  South  Improvement  contracts  had  been  cancelled 
and  that  their  roads  had  no  understanding  of  any  nature  in 
regard  to  freights  with  the  Standard  Oil  Company.  "The 
only  existing  arrangement  is  with  you,"  telegraphed  General 
McClellan.  W.  H.  Vanderbilt  reminded  Mr.  Hasson  that  the 
agreement  of  March  25,  between  the  railroad  companies  and 
the  joint  committee  of  producers  and  refiners,  was  on  a  basis  of  \ 
perfect  equality  for  all,  and  the  inference  was,  how  could  Mr.  ! 
Vanderbilt  possibly  make  a  special  arrangement  with  the 
Standard?  From  the  Standard  Oil  Company  the  following 
was  received: 

Cleveland,  Ohio,  April  8,  1872. 
To  Captain  William  Hasson  :  In  answer  to  your  telegram,  this  company  holds  no 
contract  with  the  railroad  companies  or  any  of  them,  or  with  the  South  Improvement 
Company.  The  contracts  between  the  South  Improvement  Company  and  the  rail- 
roads have  been  cancelled,  and  I  am  informed  you  have  been  so  advised  by  telegram. 
I  state  unqualifiedly  that  reports  circulated  in  the  Oil  Region  and  elsewhere,  that 
this  company,  or  any  member  of  it,  threatened  to  depress  oil,  are  false. 

John  D.  Rockefeller,  President. 

After  reading  all  the  telegrams  the  committee  submitted  its 
report.  The  gist  of  it  was  that  since  they  had  official  assurance 
that  the  hated  contracts  were  cancelled,  and  that  since  they 
had  secured  from  all  the  trunk  lines  a  "fair  rate  of  freight, 
equal  to  all  shippers  and  producers,  great  or  small,  with  an 
abolition  of  the  system  of  rebates  and  drawbacks,"  the  time 
had  arrived  "to  open  the  channels  of  trade  to  all  parties  desir- 
ing to  purchase  or  deal  in  oil  on  terms  of  equality."  The 

[96] 


THE  OIL  WAR  OF  1872 

report  was  received  with  "approbation  and  delight"  and  put 
an  official  end  to  the  "Oil  War." 

But  no  number  of  resolutions  could  wipe  out  the  memory 
of  the  forty  days  of  terrible  excitement  and  loss  which  the 
region  had  suffered.  No  triumph  could  stifle  the  suspicion  and 
the  bitterness  which  had  been  sown  broadcast  through  the 
region.  Every  particle  of  independent  manhood  in  these  men 
whose  very  life  was  independent  action  had  been  outraged. 
Their  sense  of  fair  play,  the  saving  force  of  the  region  in  the 
days  before  law  and  order  had  been  established,  had  been 
violated.  These  were  things  which  could  not  be  forgotten. 
There  henceforth  could  be  no  trust  in  those  who  had  devised 
a  scheme  which,  the  producers  believed,  was  intended  to  rob 
them  of  their  property. 

It  was  inevitable  that  under  the  pressure  of  their  indigna- 
tion and  resentment  some  person  or  persons  should  be  fixed 
upon  as  responsible,  and  should  be  hated  accordingly.  Before 
the  lifting  of  the  embargo  this  responsibility  had  been  fixed. 
It  was  the  Standard  Oil  Company  of  Cleveland,  so  the  Oil 
Regions  decided,  which  was  at  the  bottom  of  the  business,  and 
the  "Mephistopheles  of  the  Cleveland  company,"  as  they  put 
it,  was  JohoJD.  Rockefeller.  Even  the  Cleveland  Herald 
acknowledged  this  popular  judgment.  "Whether  justly  or 
unjustly,"  the  editor  wrote,  "Cleveland  has  the  odium  of  hav- 
ing originated  the  scheme."  This  opinion  gained  ground  as 
the  days  passed.  The  activity  of  the  president  of  the  Standard 
in  New  York,  in  trying  to  save  the  contracts  with  the  rail- 
roads, and  his  constant  appearance  with  Mr.  Watson,  and  the 
fact  brought  out  by  the  Congressional  Investigation  that  a 
larger  block  of  the  South  Improvement  Company's  stock  was 
owned  in  the  Standard  than  in  any  other  firm,  strengthened 
the  belief.  But  what  did  more  than  anything  else  to  fix  the 
conviction  was  what  they  had  learned  of  the  career  of  the 
Standard  Oil  Company  in  Cleveland.  Before  the  Oil  War  the 

[97] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

company  had  been  known  simply  as  one  of  several  successful 
firms  in  that  city.  It  drove  close  bargains,  but  it  paid 
promptly,  and  was  considered  a  desirable  customer.  Now  the 
Oil  Regions  learned  for  the  first  time  of  the  sudden  and 
phenomenal  expansion  of  the  company.  Where  there  had  been 
at  the  beginning  of  1872  twenty-six  refining  firms  in  Cleve- 
land, there  were  but  six  left.  In  three  months  before  and 
during  the  Oil  War  the  Standard  had  absorbed  twenty  plants. 
It  was  generally  charged  by  the  Cleveland  refiners  that  Mr. 
Rockefeller  had  used  the  South  Improvement  scheme  to  per- 
suade or  compel  his  rivals  to  sell  to  him.  "Why,"  cried  the 
oil  men,  "the  Standard  Oil  Company  has  done  already  in 
Cleveland  what  the  South  Improvement  Company  set  out  to 
do  for  the  whole  country,  and  it  has  done  it  by  the  same 
means." 

By  the  time  the  blockade  was  raised,  another  unhappy 
conviction  was  fixed  on  the  Oil  Regions — the  Standard  Oil 
Company  meant  to  carry  out  the  plans  of  the  exploded  South 
Improvement  Company.  The  promoters  of  the  scheme  were 
partly  responsible  for  the  report.  Under  the  smart  of  their 
defeat  they  talked  rather  more  freely  than  their  policy  of 
silence  justified,  and  their  remarks  were  quoted  widely.  Mr. 
Rockefeller  was  reported  in  the  Derrick  to  have  said  to  a 
prominent  oil  man  of  Oil  City  that  the  South  Improvement 
Company  could  work  under  the  charter  of  the  Standard  Oil 
Company,  and  to  have  predicted  that  in  less  than  two  months 
the  gentlemen  would  be  glad  to  join  him.  The  newspapers 
made  much  of  the  following  similar  story  reported  by  a  New 
York  correspondent: 

A  prominent  Cleveland  member  of  what  was  the  South  Improvement  Company  had 
said  within  two  days:  "The  business  now  will  be  done  by  the  Standard  Oil  Company. 
We  have  a  rate  of  freight  by  water  from  Cleveland  to  New  York  at  seventy  cents. 
No  man  in  the  trade  shall  make  a  dollar  this  year.  We  purpose  to  manipulating  the 
market  as  to  run  the  price  of  crude  on  the  creek  as  low  as  two  and  a  half.  We  mean 

[98] 


THE  OIL  WAR  OF  1872 

to  show  the  world  that  the  South  Improvement  Company  was  organised  for  business 
and  means  business  in  spite  of  opposition.  The  same  thing  has  been  said  in  substance 
by  the  leading  Philadelphia  member." 

"The  trade  here  regards  the  Standard  Oil  Company  as  sim- 
ply taking  the  place  of  the  South  Improvement  Company  and 
as  being  ready  at  any  moment  to  make  the  same  attempt  to 
control  the  trade  as  its  progenitors  did,"  said  the  New  York 
Bulletin  about  the  middle  of  April.  And  the  Cleveland 
Herald  discussed  the  situation  under  the  heading,  "South 
Improvement  Company  alias  Standard  Oil  Company."  The 
effect  of  these  reports  in  the  Oil  Regions  was  most  disastrous. 
Their  open  war  became  a  kind  of  guerilla  opposition.  Those 
who  sold  oil  to  the  Standard  were  ostracised,  and  its  president 
was  openly  scorned. 

If  Mr.  Rockefeller  had  been  an  ordinary  man  the  outburst 
of  popular  contempt  and  suspicion  which  suddenly  poured  on 
his  head  would  have  thwarted  and  crushed  him.  But  he  was  no 
ordinary  man.  He  had  the  powerful  imagination  to  see  what 
might  be  done  with  the  oil  business  if  it  could  be  centered 
in  his  hands — the  intelligence  to  analyse  the  problem  into  its 
elements  and  to  find  the  key  to  control.  He  had  the  essential 
element  of  all  great  achievement,  a  steadfastness  to  a  purpose 
once  conceived  which  nothing  can  crush.  The  Oil  Regions 
might  rage,  call  him  a  conspirator,  and  all  those  who  sold  him 
oil,  traitors;  the  railroads  might  withdraw  their  contracts  and 
the  Legislature  annul  his  charter;  undisturbed  and  unresting 
he  kept  at  his  great  purpose.  Even  if  his  nature  had  not 
been  such  as  to  forbid  him  to  abandon  an  enterprise  in  which 
he  saw  promise  of  vast  profits,  even  if  he  had  not  had  a 
mind  which,  stopped  by  a  wall,  burrows  under  or  creeps 
around,  he  would  nevertheless  have  been  forced  to  desperate 
efforts  to  keep  up  his  business.  He  had  increased  his  refining 
capacity  in  Cleveland  to  10,000  barrels  on  the  strength  of  the 
South  Improvement  Company  contracts.  These  contracts  were 
I  [  99  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

annulled,  and  in  their  place  was  one  signed  by  officials  of  all 
the  oil-shipping  roads  refusing  rebates  to  everybody.  His  geo- 
graphical position  was  such  that  it  cost  him  under  these  new 
contracts  fifty  cents  more  to  get  oil  from  the  wells  to  New 
York  than  it  did  his  rivals  on  the  creek.  True,  he  had  many 
counterbalancing  advantages — a  growing  Western  market 
almost  entirely  in  his  hands,  lake  traffic,  close  proximity  to  all 
sorts  of  accessories  to  his  manufacturing,  but  this  contract  put 
him  on  a  level  with  his  rivals.  By  his  size  he  should  have  better 
terms  than  they.  What  did  he  do? 

He  got  a  rebate.  Seven  years  later  Mr.  Rockefeller's  part- 
ner, H.  M.  Flagler,  was  called  before  a  commission  of  the 
Ohio  State  Legislature  appointed  to  investigate  railroads. 
He  was  asked  for  the  former  contracts  between  his  company 
and  the  railroads,  and  among  others  he  presented  one  showing 
that  from  "the  first  of  April  until  the  middle  of  November, 
1872,"  their  East-bound  rate  was  $1.25,  twenty-five  cents  less 
than  that  set  by  the  agreement  of  March  25th,  between  the  oil 
men  and  the  railroads.*  The  discrepancy  between  the  date 
Mr.  Flagler  gives  for  this  contract  and  that  of  Mr.  Vander- 
bilt's  telegram  to  Mr.  Hasson  stating  that  his  road  had  no 
contract  with  the  Standard  Oil  Company,  April  6,  and  of  Mr. 
Rockefeller's  own  telegram  stating  he  had  no  contracts  with 
the  railroads,  April  8,  the  writer  is  unable  to  explain.  How 
had  Mr.  Rockefeller  been  able  to  get  this  rebate?  Simply  as 
he  had  always  done — by  virtue  of  the  quantity  he  shipped.  He 
was  able  to  say  to  Mr.  Vanderbilt,  I  can  make  a  contract  to 
ship  sixty  car-loads  of  oil  a  day  over  your  road— nearly  4,800 
barrels;  I  cannot  give  this  to  you  regularly  unless  you  will 
make  me  a  concession;  and  Mr.  Vanderbilt  made  the  conces- 
sion while  he  was  signing  the  contract  with  the  oil  men.  Of 
course  the  rate  was  secret,  and  Mr.  Rockefeller  probably 
understood  now,  as  he  had  not  two  months  before,  how  essen- 

*  See  Appendix,  Number  14.   Testimony  of  Henry  M.  Flagler. 

[  100] 


THE  OIL  WAR  OF  1872 

tial  iijsvas  that  he  keep  it  secret.  His  task  was  more  difficult 
now,  for  he  had  an  enemy  active,  clamorous,  contemptuous, 
whose  suspicions  had  reached  that  acute  point  where  they 
could  believe  nothing  but  evil  of  him — the  producers  and 
independent  refiners  of  the  Oil  Regions.  It  was  utterly  impos- 
sible that  he  should  ever  silence  this  enemy,  for  their  points 
of  view  were  diametrically  opposed. 

They  believed  in  independent  effort — every  man  for  him- 
self and  fair  play  for  all.  They  wanted  competition,  loved 
open  fight.  They  considered  that  all  business  should  be  done 
openly;  that  the  railways  were  bound  as  public  carriers  to 
give  equal  rates;  that  any  combination  which  favoured  one 
firm  or  one  locality  at  the  expense  of  another  was  unjust  and 
illegal.  This  belief  long  held  by  many  of  the  oil  men  had 
been  crystallised  by  the  uprising  into  a  common  sentiment. 
It  had  become  the  moral  code  of  the  region. 

Mr.  Rockefeller's  point  of  view  was  different.  He  believed 
that  the  "good  of  all"  was  in  a  combination  which  would 
control  the  business  as  the  South  Improvement  Company  pro- 
posed to  control  it.  Such  a  combination  would  end  at  once  all 
the  abuses  the  business  suffered.  As  rebates  and  special  rates 
were  essential  to  this  control,  he  favoured  them.  Of  course 
Mr.  Rockefeller  must  have  known  that  the  railroad  was  a 
common  carrier,  and  that  the  common  law  forbade  discrimi- 
nation. But  he  knew  that  the  railroads  had  not  obeyed  the  laws 
governing  them,  that  they  had  regularly  granted  special  rates 
and  rebates  to  those  who  had  large  amounts  of  freight.  That 
is,  you  were  able  to  bargain  with  the  railroads  as  you  did 
with  a  man  carrying  on  a  strictly  private  business  depending 
in  no  way  on  a  public  franchise.  Moreover,  Mr.  Rockefeller 
probably  believed  that,  in  spite  of  the  agreements,  if  he  did  not 
get  rebates  somebody  else  would;  that  they  were  for  the  wari- 
est, the  shrewdest,  the  most  persistent.  If  somebody  was  to 
get  rebates,  why  not  he?  This  point  of  view  was  no  uncommon 

[101] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

one.  Many  men  held  it  and  felt  a  sort  of  scorn,  as  practical 
men  always  do  for  theorists,  when  it  was  contended  that  the 
shipper  was  as  wrong  in  taking  rates  as  the  railroads  in 
granting  them. 

Thus,  on  one  hand  there  was  an  exaggerated  sense  of  per- 
sonal independence,  on  the  other  a  firm  belief  in  combination; 
on  one  hand  a  determination  to  root  out  the  vicious  system  of 
rebates  practised  by  the  railway,  on  the  other  a  determination 
to  keep  it  alive  and  profit  by  it.  Those  theories  which  the  body 
of  oil  men  held  as  vital  and  fundamental  Mr.  Rockefeller 
and  his  associates  either  did  not  comprehend  or  were  deaf 
to.  This  lack  of  comprehension  by  many  men  of  what  seems 
to  other  men  to  be  the  most  obvious  principles  of  justice  is 
not  rare.  Many  men  who  are  widely  known  as  good,  share  it. 
Mr.  Rockefeller  was  "good."  There  was  no  more  faithful 
Baptist  in  Cleveland  than  he.  Every  enterprise  of  that  church 
he  had  supported  liberally  from  his  youth.  He  gave  to  its 
poor.  He  visited  its  sick.  He  wept  with  its  suffering.  More- 
over, he  gave  unostentatiously  to  many  outside  charities  of 
whose  worthiness  he  was  satisfied.  He  was  simple  and  frugal 
in  his  habits.  He  never  went  to  the  theatre,  never  drank  wine. 
He  gave  much  time  to  the  training  of  his  children,  seeking 
to  develop  in  them  his  own  habits  of  economy  and  of  charity. 
Yet  he  was  willing  to  strain  every  nerve  to  obtain  for  himself 
special  and  unjust  privileges  from  the  railroads  which  were 
bound  to  ruin  every  man  in  the  oil  business  not  sharing  them 
with  him.  He  was  willing  to  array  himself  against  the  com- 
bined better  sentiment  of  a  whole  industry,  to  oppose  a  popu- 
lar movement  aimed  at  righting  an  injustice,  so  revolting  to 
one's  sense  of  fair  play  as  that  of  railroad  discriminations.- 
Religious  emotion  and  sentiments  of  charity,  propriety  and 
self-denial  seem  to  have  taken  the  place  in  him  of  notions  of 
justice  and  regard  for  the  rights  of  others. 

Unhampered,  then,  by  any  ethical  consideration,   undis- 

[  102] 


THE  OIL  WAR  OF  1872 

mayed  by  the  clamour  of  the  Oil  Regions,  believing  firmly 
as  ever  that  relief  for  the  disorders  in  the  oil  business  lay  in 
combining  and  controlling  the  entire  refining  interest,  this 
man  of  vast  patience  and  foresight  took  up  his  work.  That 
work  now  was  to  carry  out  some  kind  of  a  scheme  which 
would  limit  the  output  of  refined  oil.  He  had  put  his  competi- 
tors in  Cleveland  out  of  the  way.  He  had  secured  special  privi- 
leges in  transportation,  but  there  were  still  too  many  refineries 
at  work  to  make  it  possible  to  put  up  the  price  of  oil  four 
cents  a  gallon.  It  was  certain,  too,  that  no  scheme  could  be 
worked  to  do  that  unless  the  Oil  Regions  could  be  mollified. 
That  now  was  Mr.  Rockefeller's  most  important  business.  Just 
how  he  began  is  not  known.  It  is  only  certain  that  the  day 
after  the  newspapers  of  the  Oil  Regions  printed  the  report 
of  the  Congressional  Committee  on  Commerce  denouncing  the 
South  Improvement  Company  as  "one  of  the  most  gigantic 
and  dangerous  conspiracies  ever  attempted,"  and  declaring 
that  if  it  had  not  been  checked  in  time  it  "would  have  resulted 
in  the  absorption  and  arbitrary  control  of  trade  in  all  the  great 
interests  of  the  country."  *  Mr.  Rockefeller  and  several  other 
members  of  the  South  Improvement  Company  appeared  in  the 
Oil  Regions.  They  had  come,  they  explained,  to  present  a  new 
plan  of  co-operation,  and  to  show  the  oil  men  that  it  was  to 
their  interest  to  go  into  it.  Whether  they  would  be  able  to 
obtain  by  persuasion  what  they  had  failed  to  obtain  by  assault 
was  now  an  interesting  uncertainty. 

*  The  report  of  the  committee  of  Congress  which  investigated  the  South  Improve- 
ment Company  was  not  made  until  May  7,  over  a  month  after  the  organisation  was 
destroyed  by  the  cancelling  of  the  contracts  with  the  railroads. 


[103] 


CHAPTER    FOUR 

"AN  UNHOLY   ALLIANCE" 

ROCKEFELLER  AND  HIS  PARTY  NOW  PROPOSE  AN  OPEN  INSTEAD  OF  A 
SECRET  COMBINATION— "  THE  PITTSBURG  PLAN"— THE  SCHEME  IS  NOT 
APPROVED  BY  THE  OIL  REGIONS  BECAUSE  ITS  CHIEF  STRENGTH  IS  THE 
REBATE  — ROCKEFELLER  NOT  DISCOURAGED  — THREE  MONTHS  LATER 
BECOMES  PRESIDENT  OF  NATIONAL  REFINERS'  ASSOCIATION— FOUR-FIFTHS 
OF  REFINING  INTEREST  OF  UNITED  STATES  WITH  HIM— OIL  REGIONS 
AROUSED— PRODUCERS'  UNION  ORDER  DRILLING  STOPPED  AND  A  THIRTY 
DAY  SHUT-DOWN  TO  COUNTERACT  FALLING  PRICE  OF  CRUDE— PETRO- 
LEUM PRODUCERS'  AGENCY  FORMED  TO  ENABLE  PRODUCERS  TO  CON- 
TROL THEIR  OWN  OIL— ROCKEFELLER  OUTGENERALS  HIS  OPPONENTS  AND 
FORCES  A  COMBINATION  OF  REFINERS  AND  PRODUCERS  — PRODUCERS' 
ASSOCIATION  AND  PRODUCERS'  AGENCY  SNUFFED  OUT— NATIONAL  REFIN- 
ERS' ASSOCIATION  DISBANDS— ROCKEFELLER  STEADILY  GAINING  GROUND. 

THE  feeling  of  outrage  and  resentment  against  the 
Standard  Oil  Company,  general  in  the  Oil  Regions 
at  the  close  of  the  Oil  War  because  of  the  belief  that 
it  intended  to  carry  on  the  South  Improvement 
Company  in  some  new  way,  was  intensified  in  the  weeks 
immediately  following  the  outbreak  by  the  knowledge  that 
Mr.  Rockefeller  had  been  so  enormously  benefited  by  the 
short-lived  concern.  Here  he  was  shipping  Eastward  over 
one  road  between  4,000  and  5,000  barrels  of  refined  oil  a 
day- — oil  wrung  from  his  neighbours  by  an  outrageous  con- 
spiracy, men  said  bitterly.  This  feeling  was  still  keen  when 
Mr.  Rockefeller  and  several  of  his  colleagues  in  the  South 
Improvement  scheme  suddenly,  in  May,  1873,  appeared 
on  the  streets  of  Titusville.  The  men  who  had  fought  him 
so   desperately   now   stared   in   amazement   at   the   smiling, 

[  "M] 


"AN  UNHOLY  ALLIANCE" 

unruffled  countenance  with  which  he  greeted  them.  Did 
not  the  man  know  when  he  was  beaten?  Did  he  not  realise 
the  opinion  the  Oil  Regions  held  of  him?  His  placid  de- 
meanour in  the  very  teeth  of  their  violence  was  discon- 
certing. 

Not  less  of  a  shock  was  given  the  country  by  the  knowledge 
that  Mr.  Rockefeller,  Mr.  Flagler,  Mr.  Waring  and  the 
other  gentlemen  in  their  party  were  pressing  a  new  alliance, 
and  that  they  claimed  that  their  new  scheme  had  none  of  the 
obnoxious  features  of  the  defunct  South  Improvement  Com- 
pany, though  it  was  equally  well  adapted  to  work  out  the 
"good  of  the  oil  business." 

For  several  days  the  visiting  gentlemen  slipped  around, 
bland  and  smiling,  from  street  corner  to  street  corner,  from 
office  to  office,  explaining,  expostulating,  mollifying.  "You 
misunderstand  our  intention,"  they  told  the  refiners.  "It  is  to 
save  the  business,  not  to  destroy  it,  that  we  are  come.  You 
see  the  disorders  competition  has  wrought  in  the  oil  industry. 
Let  us  see  what  combination  will  do.  Let  us  make  an  experi- 
ment— that  is  all.  If  it  does  not  work,  then  we  can  go  back  to 
the  old  method." 

Although  Mr.  Rockefeller  was  everywhere,  and  heard 
everything  in  these  days,  he  rarely  talked.  "I  remember  well 
how  little  he  said,"  one  of  the  most  aggressively  independent 
of  the  Titusville  refiners  told  the  writer.  "One  day  several  of 
us  met  at  the  office  of  one  of  the  refiners,  who,  I  felt  pretty 
sure,  was  being  persuaded  to  go  into  the  scheme  which  they 
were  talking  up.  Everybody  talked  except  Mr.  Rockefeller. 
He  sat  in  a  rocking-chair,  softly  swinging  back  and  forth,  his 
hands  over  his  face.  I  got  pretty  excited  when  I  saw  how 
those  South  Improvement  men  were  pulling  the  wool  over 
our  men's  eyes,  and  making  them  believe  we  were  all  going 
to  the  dogs  if  there  wasn't  an  immediate  combination  to  put 
up  the  price  of  refined  and  prevent  new  people  coming  into 

[105] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  business,  and  I  made  a  speech  which,  I  guess,  was  pretty 
warlike.  Well,  right  in  the  middle  of  it  John  Rockefeller 
stopped  rocking  and  took  down  his  hands  and  looked  at 
me.  You  never  saw  such  eyes.  He  took  me  all  in,  saw  just  how 
much  fight  he  could  expect  from  me,  and  I  knew  it,  and  then 
up  went  his  hands  and  back  and  forth  went  his  chair." 

For  fully  a  week  this  quiet  circulation  among  the  oil  men 
went  on,  and  then,  on  May  15  and  16,  public  meetings 
were  held  in  Titusville,  at  which  the  new  scheme  which 
they  had  been  advocating  was  presented  publicly.  This  new 
plan,  called  the  "Pittsburg  Plan"*  from  the  place  of  its  birth, 
had  been  worked  out  by  the  visiting  gentlemen  before  they 
came  to  the  Oil  Regions.  It  was  a  most  intelligent  and  compre- 
hensive proposition. 

As  in  the  case  of  the  South  Improvement  scheme,  a  company 
was  to  be  formed  to  run  the  refining  business  of  the  whole 
country,  but  this  company  was  to  be  an  open  instead  of  a 
secret  organisation,  and  all  refiners  were  to  be  allowed  to 
become  stockholders  in  it.  The  owners  of  the  refineries  who 
went  into  the  combination  were  then  to  run  them  in  certain 
particulars  according  to  the  direction  of  the  board  of  the 
parent  company;  that  is,  they  were  to  refine  only  such  an 
amount  of  oil  as  the  board  allowed,  and  they  were  to  keep 
up  the  price,  for  their  output  as  the  board  indicated.  The 
buying  of  crude  oil  and  the  arrangements  for  transportation 
were  also  to  remain  with  the  directors.  Each  stockholder  was 
to  receive  dividends  whether  his  plant  operated  or  not.  The 
"Pittsburg  Plan"  was  presented  tentatively.  If  anything  better 
could  be  suggested  they  would  gladly  accept  it,  its  advocates 
said.  "All  we  want  is  a  practical  combination.  We  are  wed  ! 
to  no  particular  form." 

The  first  revelation  of  the  public  meetings  at  which  the 
"Pittsburg  Plan"  was  presented  was  that  in  the  days  Mr. 

*  See  Appendix,  Number  15.    The  Pittsburg  Plan. 

[106] 


"AN  UNHOLY  ALLIANCE" 

Rockefeller  and  his  friends  had  been  so  diligently  shaking 
hands  with  the  oil  men  from  Titusville  to  Oil  City  they  had 
made  converts — that  they  had  not  entered  these  open  meetings 
until  they  had  secured  the  assurance  of  co-operation  in  any 
plan  of  consolidation  which  might  be  effected  from  some  of 
the  ablest  refiners  and  business  men  of  the  creek,  notably 
from  J.  J.  Vandergrift  of  Oil  City,  and  from  certain  firms  of 
Titusville  with  which  John  D.  Archbold  was  connected.  All 
of  these  persons  had  fought  the  South  Improvement  Com- 
pany, and  they  all  now  declared  that  if  the  proposed  organisa- 
tion copied  that  piratical  scheme  they  would  have  noth- 
ing to  do  with  it,  that  their  allegiance  to  the  plan  was  based 
on  their  conviction  that  it  was  fair  to  all — who  went  inl — and 
that  it  was  made  necessary  by  over-refining,  underselling,  and 
by  the  certainty  that  the  railroads  could  not  be  trusted  to  keep 
their  contracts.  It  was  evident  that  the  possible  profits  and 
power  to  be  gained  by  a  successful  combination  had  wiped  out 
their  resentment  against  the  leaders  of  the  South  Improve- 
ment Company,  and  that  if  they  had  the  assurance,  as  they 
must  have  had,  that  rebates  were  a  part  of  the  game,  they 
justified  themselves  by  the  reflection  that  somebody  was  sure 
to  get  them,  and  that  it  might  as  well  be  they  as  anybody. 

The  knowledge  that  a  considerable  body  of  the  creek 
refiners  had  gone  over  to  Mr.  Rockefeller  awakened  a  general 
bitterness  among  those  who  remained  independent.  "De- 
serters," "ringsters,"  "monopolists,"  were  the  terms  applied 
to  them,  and  the  temper  of  the  public  meetings,  as  is  evident 
from  the  full  reports  the  newspapers  of  the  Oil  Region  pub- 
lished, became  at  once  uncertain.  There  were  long  pauses  in 
le  proceedings,  everybody  fearing  to  speak.  Mr.  Rocke- 
:ller  is  not  reported  as  having  spoken  at  all,  the  brunt  of 
tefense  and  explanation  having  fallen  on  Mr.  Flagler,  Mr. 
rew  and  Mr.  Waring.  Two  or  three  times  the  convention 
rangled  to  the  point  of  explosion,  and  one  important  refiner, 

[107] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

M.  N.  Allen,  who  was  also  the  editor  of  the  Titusville 
Courier,  one  of  the  best  papers  in  the  region,  took  his  hat 
and  left.  Before  the  end  of  the  convention  the  supporters  of 
combination  ought  to  have  felt,  if  they  did  not,  that  they 
had  been  a  little  too  eager  in  pressing  an  alliance  on  the  Oil 
Regions  so  soon  after  outraging  its  moral  sentiment. 

The  press  and  people  were  making  it  plain  enough,  indeed, 
that  they  did  not  trust  the  persuasive  advocates  of  reform. 
On  every  street  corner  and  on  every  railroad  train  men  reck- 
oned the  percentage  of  interest  the  stockholders  of  the  South 
Improvement  Company  would  have  in  the  new  combination. 
It  was  too  great.  But  what  stirred  the  Oil  Region  most  deeply 
was  its  conviction  that  the  rebate  system  was  regarded  as  the 
keystone  of  the  new  plan.  "What  are  you  going  to  do  with  the 
men  who  prefer  to  run  their  own  business?"  asked  a  repre- 
sentative of  the  Oil  City  Derrick  of  one  of  the  advocates 
of  the  plan.  "Go  through  them,"  was  reported  to  be  his 
laconic  reply.  "But  how?"  "By  the  co-operation  of  transporta- 
tion"— that  is,  by  rebates.  Now  the  Oil  Region  had  been  too 
recently  convicted  of  the  sin  of  the  rebate,  and  had  taken  too 
firm  a  determination  to  uproot  the  iniquitous  practice  to  be 
willing  to  ally  itself  with  any  combination  which  it  suspected 
of  accepting  privileges  which  its  neighbours  could  not  get  or 
would  not  take. 

At  the  very  time  the  association  of  refiners  was  under  con- 
sideration an  attempt  was  made  to  win  over  the  producers  by 
offering,  through  their  union,  to  buy  all  their  oil  at  five  dollars 
a  barrel  for  five  years.  Oil  was  four  dollars  at  the  time.  The  pro- 
ducers refused.  Such  an  agreement  could  only  be  kept,  they  said, 
by  an  association  which  was  an  absolute  monopoly,  fixing  prices 
of  refined  to  satisfy  its  own  greed.  All  they  wanted  of  the  pro- 
ducer was  to  be  a  party  to  their  conspiracy.  When  they  had 
destroyed  his  moral  force  and  completed  their  monopoly  they 
.would  pay  him  what  they  pleased  for  oil,  and  the  price  would 

[108] 


"AN  UNHOLY  ALLIANCE" 

not  be  five  dollars!  What  could  he  do  then?  He  would  be 

P  their  slave,  there  would  be  no  other  buyer — could  be  none, 
since  they  would  control  the  entire  transportation  system. 
The  upshot  of  the  negotiations  was  that  again  the  advocates 
of  combination  had  to  retire  from  the  Oil  Regions  defeated. 
"Sic  semper  tyrannis,  sic  transit  gloria  South  Improvement 
Company,"  sneered  the  Oil  City  Derrick,  which  was  given 
to  sprinkling  Latin  phrases  into  its  forceful  and  picturesque 
English.  But  the  Derrick  underrated  both  the  man  and  the 
principle  at  which  it  sneered.  A  great  idea  was  at  work  in  the 
commercial  world.  It  had  come  to  them  saddled  with  crime. 
They  now  saw  nothing  in  it  but  the  crime.  The  man  who  had 
brought  it  to  them  was  not  only  endowed  with  far  vision,  he 
was  endowed  with  an  indomitable  purpose.  He  meant  to  con- 
trol the  oil  business.  By  one  manoeuvre,  and  that  a  discredited 
one,  he  had  obtained  control  of  one-fifth  of  the  entire  refining 
output  of  the  United  States.  He  meant  to  secure  the  other 
four-fifths.  He  might  retire  now,  but  the  Oil  Region  would 
hear  of  him  again.  It  did.  Three  months  later,  in  August,  1872, 
it  was  learned  that  the  scheme  of  consolidation  which  had 
been  presented  in  vain  at  Titusville  in  May  had  been  quietly 
carried  out,  that  four-fifths  of  the  refining  interest  of  the 
United  States,  including  many  of  the  creek  refiners,  had 
gone  into  a  National  Refiners'  Association,  of  which  Mr. 
Rockefeller  was  president,  and  one  of  their  own  men,  J.  J. 
Vandergrift,  was  vice-president.  The  news  aroused  much 
resentment  in  the  Oil  Regions.  The  region  was  no  longer  solid 
in  its  free-trade  sentiment,  no  longer  undividedly  true  to  its 
vow  that  the  rebate  system  as  applied  to  the  oil  trade  must 
end.  There  was  an  enemy  at  home.  The  hard  words  which 
for  months  men  had  heaped  on  the  distant  heads  of  Cleveland 
and  Pittsburg  refiners,  they  began  to  pour  out,  more  dis- 
creetly to  be  sure,  on  the  heads  of  their  neighbours.  It  boded 
ill  for  the  interior  peace  of  the  Oil  Regions. 

[  109] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

The  news  that  the  refiners  had  actually  consolidated  aroused 
something  more  than  resentment.  The  producers  generally 
were  alarmed.  If  the  aggregation  succeeded  they  would  have 
one  buyer  only  for  their  product,  and  there  was  not  a  man 
of  them  who  believed  that  this  buyer  would  ever  pay  them  a 
vcent  more  than,  necessary  for  their  oil.  Their  alarm  aroused 
them  to  energy.  The  association  which  had  scattered  the  South 
Improvement  Company  was  revived,  and  began  at  once  to 
consider  what  it  could  do  to  prevent  the  consolidated  refiners 
getting  the  upper  hand  in  the  business. 

The  association  which  now  prepared  to  contest  the  mastery 
of  the  oil  business  with  Mr.  Rockefeller  and  those  who  had 
joined  him  was  a  curious  and  a  remarkable  body.  Its  member- 
ship, drawn  from  the  length  and  breadth  of  the  Oil  Regions, 
included  men  whose  production  was  thousands  of  barrels  a 
day  and  men  who  were  pumping  scarcely  ten  barrels;  it 
included  college-bred  men  who  had  come  from  the  East  with 
comfortable  sums  to  invest,  and  men  who  signed  their  names 
with  an  effort,  had  never  read  a  book  in  their  lives,  and  whose 
first  wells  they  had  themselves  "kicked  down."  There  were 
producers  in  it  who  had  made  and  lost  a  half-dozen  fortunes, 
and  who  were,  apparently,  just  as  buoyant  and  hopeful  as 
when  they  began.  There  were  those  who  had  never  put  down 
a  dry  well,  and  were  still  unsatisfied.  However  diverse  their 
fortunes,  their  breeding,  and  their  luck,  there  was  no  differ- 
ence in  the  spirit  which  animated  them  now. 

The  president  of  the  association  was  Captain  William  Has- 
son,  a  young  man  both  by  his  knowledge  of  the  Oil  Regions 
and  the  oil  business  well  fitted  for  the  position.  Captain  Has- 
son  was  one  of  the  few  men  in  the  association  who  had  been 
in  the  country  before  the  discovery  of  oil.  His  father  had 
bought,  in  the  fifties,  part  of  the  grant  of  land  at  the  mouth 
of  Oil  Creek,  made  in  1796  to  the  Indian  chief  Cornplanter, 
and  had  moved  on  it  with  his  family.  Four  years  after  the 

[no] 


M.   N.    ALLEN 

Independent  refiner  of  Titusville.  Editor  of  the 
Courier,  an  able  opponent  of  the  South  Improve- 
ment Company. 


JOHN   FERTIG 

Prominent  oil  operator.     Until  1893  active  in  Pro- 
ducers' and  Refiners'  Company  (independent). 


CAPT.    WILLIAM   HASSON 

President  of  the  Petroleum  Producers'  Association 
of  1872. 


JOHN   L.    MC  KINNEY 

Prominent  oil  operator.   Until  1889  an  independent. 
Now  member  of  the  Standard  Oil  Company. 


I 


"AN  UNHOLY  ALLIANCE" 

discovery  of  oil  he  and  his  partner  disposed  of  300  acres 
of  the  tract  they  owned  for  $750,000.  Young  Hasson  had  seen 

I^ornplanter,  as  the  site  of  his  father's  farm  was  called,  become 
)il  City;  he  had  seen  the  mill,  blacksmith  shop  and  country 
avern  give  way  to  a  thriving  town  of  several  thousand  inhab- 
tants.  All  of  his  interests  and  his  pride  were  wrapped  up 
n  the  industry  which  had  grown  up  about  him.  Independent 
in  spirit,  vigorous  in  speech,  generous  and  just  in  character, 
William  Hasson  had  been  thoroughly  aroused  by  the  assault 
of  the  South  Improvement  Company,  and  under  his  presi- 
dency the  producers  had  conducted  their  successful  campaign. 
The  knowledge  that  the  same  man  who  had  been  active  in 
that  scheme  had  now  organised  a  national  association  had  con- 
vinced Captain  Hasson  of  the  necessity  of  a  counter  move, 
and  he  threw  himself  energetically  into  an  effort  to  persuade 
the»oil  producers  to  devise  an  intelligent  and  practical  plan 
for  controlling  their  end  of  the  business,  and  then  stand  by 
what  they  decided  on. 

Captain  Hasson  and  those  who  were  working  with  him 
would  have  had  a  much  more  difficult  task  in  arousing  the 
producers  to  action  if  it  had  not  been  for  the  general  dissatis- 

(  faction  over  the  price  of  oil.  The  average  price  of  crude  in 
the  month  of  August,  1872,  was  $3.47^.  The  year  before  it 
had  been  $4.42^,  and  that  was  considered  a  poverty  price. 
It  was  pretty  certain  that  prices  would  fall  still  lower,  that 
"three-dollar  oil"  was  near  at  hand.  Everybody  declared  three 
dollars  was  not  a  "living  price"  for  oil,  that  it  cost  more  than 
that  to  produce  it.  The  average  yield  of  the  wells  in  the  Oil 
Region  in  1872  was  five  barrels  a  day.  Now  a  well  cost  at 
that  time  from  $2,500  to  $8,000,  exclusive  of  the  price  of  the 

«ease.  It  cost  eight  to  ten  dollars  a  day  to  pump  a  well,  exclu- 
ive  of  the  royalty  interest — that  is,  the  proportion  of  the  pro- 
kduction  turned  over  to  the  land-owner,  usually  one-fourth.*  If 
*  Estimate  given  in  the  Oil  City  Derrick  for  September  10,  1872. 
Cm] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

a  man  had  big  wells,  and  many  of  them,  he  made  big  profits  on 
"three-dollar  oil,"  but  there  were  comparatively  few  "big 
producers."  The  majority  of  those  in  the  business  had  but  few 
wells,  and  these  yielded  only  small  amounts. 

If  he  had  been  contented  to  economise  and  to  accept  small 
gains,  even  the  small  producer  could  live  on  a  much  lower 
price  than  three  dollars ;  but  nobody  in  the  Oil  Regions  in  1872 
looked  with  favour  on  economy,  and  everybody  despised  small 
y  things.-The  oil  men  as  a  class  had  been  brought  up  to  enormous 
profits,  and  held  an  entirely  false  standard  of  values.  As  the 
Derrick  told  them  once  in  a  sensible  editorial,  "their  busi- 
ness was  born  in  a  balloon  going  up,  and  spent  all  its  early 
years  in  the  sky."  They  had  seen  nothing  but  the  extreme  of 
fortune.  One  hundred  per  cent,  per  annum  on  an  investment 
was  in  their  judgment  only  a  fair  profit.  If  their  oil  property 
had  not  paid  for  itself  entirely  in  six  months,  and  begun  to 
yield  a  good  percentage,  they  were  inclined  to  think  it  a  fail- 
ure. Now  nothing  but  five-dollar  oil  would  do  this,  so  great 
were  the  risks  in  business ;  and  so  it  was  for  five-dollar  oil,  re- 
gardless of  the  laws  of  supply  and  demand,  that  they  struggled. 
They  were  notoriously  extravagant  in  the  management  of  their 
business.  Rarely  did  an  oil  man  write  a  letter  if  he  could  help 
it.  He  used  the  telegraph  instead.  Whole  sets  of  drilling  tools 
were  sometimes  sent  by  express.  It  was  no  uncommon  thing 
to  see  near  a  derrick  broken  tools  which  could  easily  have 
been  mended,  but  which  the  owner  had  replaced  by  new  ones. 
It  was  anything  to  save  bother  with  him.  Frequently  wells 
were  abandoned  which  might  have  been  pumped  on  a  small 
but  sure  profit  In  those  days  there  were  men  who  looked  on 
a  ten-barrel  (net)  well  as  hardly  worth  taking  care  of.  And 
yet  even  at  fifty  cents  a  barrel  such  a  well  would  have  paid  the 
owner  $1,800  a  year.  The  simple  fact  was  that  the  profits 
which  men  in  trades  all  over  the  country  were  glad  enough  to 
get,  the  oil  producer  despised.yThe  one  great  thing  which 

[112] 


"AN  UNHOLY  ALLIANCE" 

the  Oil  Regions  did  not  understand  in  1872  was  economy. 
As  a  matter  of  fact  the  oil-producing  business  was  going 
through  a  stage  in  its  natural  development  similar  to  oil  refin- 
ing. Both,  under  the  stimulus  of  the  enormous  profits  in  the 
years  immediately  following  the  discovery  of  oil,  had  been 
pushed  until  they  had  outstripped  consumption.  The  compe- 
tition resulting  from  the  inrush  of  producers  and  refiners  and 
the  economies  which  had  been  worked  out  were  bringing 
down  profits.  The  combinations  attempted  by  both  refiners' 
and  producers  in  these  years  were  really  efforts  to  keep  up 
prices  to  the  extravagant  point  of  the  early  speculative  years.. 

Now  the  drop  in  the  price  of  oil  everybody  recognised  to 
be  due  to  a  natural  cause.  Where  a  year  before  the  production 
had  been  12,000  barrels  a  day,  it  was  now  16,000.  The  demand 
for  refined  had  not  increased  in  proportion  to  this  production 
of  crude,  and  oil  stocks  had  accumulated  until  the  tanks  of  the 
region  were  threatening  to  overflow.  And  there  was  no  sign 
of  falling  off.  Under  these  circumstances  it  needed  little  argu- 
ment to  convince  the  oil  men  that  if  they  were  to  get  a  better 
price  they  must  produce  no  more  than  the  world  would  use. 
There  was  but  one  way  to  effect  this — to  put  down  no  new 
wells  until  the  stocks  on  hand  were  reduced  and  the  daily 
production  was  brought  down  to  a  marketable  amount. 

Under  the  direction  of  the  Producers'  Association  an  agita- 
tion at  once  began  in  favour  of  stopping  the  drill  for  six 
months.  It  was  a  drastic  measure.  There  was  hardly  an  oil 
operator  in  the  entire  region  who  had  not  on  hand  some  piece 
of  territory  on  which  he  was  planning  to  drill,  or  on  which 
he  had  not  wells  under  way.  Stopping  the  drill  meant  that 
all  of  the  aggressive  work  of  his  business  should  cease  for 
six  months.  It  meant  that  his  production,  unreplenished,  would 
gradually  fall  off,  until  at  the  end  of  the  period  he  would  have 
probably  not  over  half  of  what  he  had  now;  that  then  he 
must  begin  over  again  to  build  up.  It  meant,  too,  that  he  was 

[113] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

at  the  mercy  of  neighbours  who  might  refuse  to  join  the 
movement,  and  who  by  continuing  to  drill  would  drain  his 
territory.  It  seemed  to  him  the  only  way  of  obtaining  a 
manageable  output  of  crude,  however,  and  accordingly,  when 
late  in  the  month  of  August  the  following  pledge  to  stop  the 
drill  was  circulated,  the  great  majority  of  the  producers 
signed  it: 

Whereas,  The  extreme  low  price  of  oil  requires  of  producers  that  operations  therefor 
shall  cease  for  the  present:  Now  we,  the  producers,  land-owners  and  others,  residents 
of  the  Pennsylvania  Oil  Region,  do  hereby  bind  ourselves  to  each  other  not  to  com- 
mence the  drilling  of  any  more  wells  for  the  period  of  six  months  from  the  first  day 
of  September  next,  not  to  lease  any  lands  owned  or  controlled  by  us  for  the  purpose 
of  operations  during  the  same  period,  and  we  also  agree  to  use  all  honourable  means 
to  prevent  others  from  boring.  This  we  agree  to,  and  bind  ourselves  to  each  other 
under  a  forfeiture  of  #2,000  for  each  well  commenced  by  either  of  us  within  the  period 
above  limited — the  same  to  be  collected  as  any  other  debt.  It  is,  however,  under- 
stood by  the  undersigned  that  this  forfeiture  is  not  to  apply  to  any  wells  where  the 
erection  of  rigs  is  completed  or  under  way,  or  that  may  be  commenced  before  the 
first  day  of  September  aforesaid. 

The  chief  objection  to  this  pledge  came  from  land-owners 
in  Clarion  County.  They  were  the  "original  settlers,"  plodding 
Dutch  farmers,  whose  lives  had  always  been  poor  and  hard 
and  shut-in.  The  finding  of  oil  had  made  them  rich  and 
greedy.  They  were  so  ignorant  that  it  was  difficult  to  transact 
business  of  any  nature  with  them.  It  was  not  unusual  for  a 
Clarion  County  farmer,  if  offered  an  eighth  royalty,  to  refuse 
it  on  the  ground  that  it  was  too  little,  and  to  ask  a  tenth.  A 
story  used  to  be  current  in  the  Oil  Regions  of  a  producer  who, 
returning  from  an  unsuccessful  land  hunt  in  Clarion  County 
was  asked  why  he  had  not  secured  a  certain  lease.  "Well,"  he 
said,  "farmers  wanted  seven-eighths  of  the  oil  as  a  royalty, 
wanted  me  to  furnish  barrels  and  to  paint  both  heads.  I  agreed 
to  everything  but  the  last.  I  could  afford  to  paint  but  one 
head,  and  so  he  wouldn't  sign  the  lease."  When  the  proposi- 

[114] 


"AN  UNHOLY  ALLIANCE" 

tion  to  stop  the  drill  for  six  months  was  brought  to  these  men, 
who  at  the  time  owned  the  richest  territory  in  the  oil  field,  no 
amount  of  explanation  could  make  them  understand  it.  They 
regarded  it  simply  as  a  scheme  to  rob  them,  and  would  not 
sign.  Outside  of  this  district,  however,  the  drill  stopped  over 
nearly  all  the  field  on  the  first  of  September. 

There  was  nothing  but  public  opinion  to  hold  the  producers 
to  their  pledge.  But  public  opinion  in  those  days  in  the  Oil 
Regions  was  fearless  and  active  and  asserted  itself  in  the  daily 
newspapers  and  in  every  meeting  of  the  association.  The  whole 
body  of  oil  men  became  a  vigilance  committee  intent  on  keep- 
ing one  another  loyal  to  the  pledge.  Men  who  appeared  at 
church  on  Sunday  in  silk  hats,  carrying  gold-headed  canes — 
there  were  such  in  the  Oil  Region  in  1872 — now  stole  out  at 
night  to  remote  localities  to  hunt  down  rumours  of  drilling 
wells.  If  they  found  them  true,  their  dignity  did  not  prevent 
their  cutting  the  tools  loose  or  carrying  off  a  band  wheel. 

Stopping  the  drill  afforded  no  immediate  relief  to  the  pro- 
ducers. It  was  for  the  future.  And  as  soon  as  the  Petroleum 
Producers'  Association  had  the  movement  well  under  way, 
it  proposed  another  drastic  measure — a  thirty  days'  shut-down 
— by  which  it  was  meant  that  all  wells  should  cease  pumping 
for  a  .month.  Nothing  shows  better  the  compact  organisation 
and  the  determination  of  the  oil  producers  at  this  time  than 
the  immediate  response  they  gave  to  this  suggestion.  In  ten 
days  scarcely  a  barrel  of  oil  was  being  pumped  from  end  to 
end  of  the  Oil  Regions.  "That  a  business  producing  three 
million  dollars  a  month,  employing  10,000  labouring  men 
and  fifty  million  dollars  of  capital,  should  be  entirely  sus- 
pended, dried  up,  stopped  still  as  death  by  a  mutual  volun- 
tary agreement,  made  and  perfected  by  all  parties  interested, 
within  a  space  of  ten  days — this  is  a  statement  that  staggers 
belief — a  spectacle  that  takes  one's  breath  away,"  cried  the 
Derrick,  which  was  using  all  its  wits  to  persuade  the  pro- 

[115] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

ducers  to  limit  their  production.  It  was  certainly  a  spectacle 
which  saddened  the  heart,  however  much  one  might  applaud 
the  grim  resolution  of  the  men  who  were  carrying  it  out.  The 
crowded  oil  farms  where  creaking  walking-beams  sawed  the 
air  from  morning  until  night,  where  engines  puffed,  whistles 
screamed,  great  gas  jets  flared,  teams  came  and  went,  and  men 
hurried  to  and  fro,  became  suddenly  silent  and  desolate,  and 
this  desolation  had  an  ugliness  all  its  own — something  unpar- 
alleled in  any  other  industry  of  this  country.  The  awkward 
derricks,  staring  cheap  shanties,  big  tanks  with  miles  and  miles 
of  pipe  running  hither  and  thither,  the  oil-soaked  ground, 
blackened  and  ruined  trees,  terrible  roads — all  of  the  common 
features  of  the  oil  farm  to  which  activity  gave  meaning  and 
dignity — now  became  hideous  in  inactivity.  Oil  seemed  a  curse 
to  many  a  man  in  those  days  as  he  stood  by  his  silent  wells 
and  wondered  what  was  to  become  of  his  business,  of  his 
family,  in  this  clash  of  interests. 

While  the  producers  were  inaugurating  these  movements, 
Captain  Hasson  and  a  committee  were  busy  making  out  the 
plan  of  the  permanent  association  which  was  to  control  the 
business  of  oil-producing  and  prevent  its  becoming  the  slave 
of  the  refining  interest.  The  knowledge  that  such  an  organisa- 
tion was  being  worked  out  kept  the  oil  country  in  a  ferment. 
In  every  district  suggestions,  practical  and  impractical,  wise 
and  foolish,  occupied  every  producers'  meeting  and  kept  the 
idle  oil  men  discussing  from  morning  until  night.  At  one 
mass-meeting  the  following  resolution  was  actually  passed 
by  a  body  of  revengeful  producers: 

Resolved,  that  to  give  a  wider  market  throughout  the  world  to  petroleum,  to  enhance 
its  price  and  to  protect  producers  from  unjust  combinations  of  home  refiners,  a  com- 
mittee  be  appointed  to  ask  the  representatives  of  foreign  governments  at  Washington 
to  request  their  respective  governments  to  put  a  proper  tariff  on  refined  oil  and  to 
admit  crude  oil  free  into  the  ports  of  their  respective  governments. 

Toward  the  end  of  October  Captain  Hasson  presented  the 

[116] 


"AN  UNHOLY  ALLIANCE" 

scheme  which  he  and  the  committee  had  prepared.  It  pro- 
posed that  there  should  be  established  what  was  called  a 
Petroleum  Producers'  Agency.*  This  agency  was  really  an 
incorporated  company  with  a  capital  of  one  million  dollars, 
the  stock  of  which  was  to  be  subscribed  to  only  by  the  pro- 
ducers or  their  friends.  This  agency  was  to  purchase  all  the 
oil  of  the  members  of  the  association  at  at  least  five  dollars  a 
barrel.  If  stocks  could  be  kept  down  so  that  the  market  took  all 
of  the  oil  at  once,  the  full  price  was  to  be  paid  at  once  in  cash ; 
if  not,  the  agency  was  to  store  the  oil  in  tanks  it  was  to  build, 
and  a  portion  of  the  price  was  to  be  paid  in  tank  certificates. 
By  thus  controlling  all  the  oil,  the  agency  expected  to  protect 
the  weakest  as  well  as  the  strongest  producer,  to  equalise  the 
interest  of  different  localities,  to  prevent  refiners  and  exporters 
from  accumulating  stocks,  and  to  prevent  gambling  in  oil.  The 
agency  was  to  take  active  means  to  collect  reliable  informa- 
tion about  the  oil  business — the  number  of  wells  drilling,  the 
actual  production,  the  stocks  on  hand — things  which  had  never 
been  done  to  anybody's  satisfaction.  Indeed,  one  of  the  stand- 
ing causes  for  quarrels  between  the  various  newspapers  of  the 
region  was  their  conflicting  statistics  about  production  and 
stocks.  It  was  to  make  a  study  of  the  market  and  see  what 
could  be  done  to  increase  consumption.  It  was  to  oppose 
monopolies  and  encourage  competition,  and,  if  necessary,  it 
was  to  provide  co-operative  refineries  which  the  producers 
should  own  and  control. 

The  spirit  of  the  agency,  as  explained  by  Captain  Hasson, 
was  most  liberal,  considering  the  interests  of  even  the  drillers 
and  pumpers.  "Advise  every  employee  to  take  at  least  one 
share  of  stock  for  himself,"  he  said  in  his  address,  "and  one 
for  his  wife  and  each  of  his  children,  and  encourage  him 
to  pay  for  it  out  of  his  saved  earnings  or  out  of  his  monthly 
pay.  If  he  is  not  able  to  keep  up  his  instalments,  assure  him 

*See  Appendix,  Number  16.    "The  Agency." 

["7] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

that  you  will  help  him,  and  then  take  care  to  do  it.  You 
will  thus  do  him  a  double  kindness,  and  benefit  his  family  by 
encouraging  habits  of  thrift  and  economy.  You  owe  this  much 
to  him  who  so  nobly  seconded  your  efforts  to  gain  control  of 
the  market  by  stopping  work.  You  had  all  to  gain,  and  he 
had  nothing  to  hope  for  but  your  benefit.  Now  show  your 
appreciation  of  his  acts  by  this  evidence  of  your  regard  for 
his  welfare." 

The  plan  was  received  with  general  enthusiasm,  and  when 
it  came  up  for  adoption  it  went  through  with  a  veritable 
whoop.  Indeed,  within  a  few  moments  after  its  official 
acceptance,  which  took  place  in  Oil  City  on  October  24, 
$200,000  worth  of  stock  was  taken,  and  less  than  two  weeks 
later  it  was  announced  that  more  than  the  desired  million 
dollars  had  been  subscribed,  that  the  trustees  and  officers 
had  been  elected,  and  that  the  agency  was  ready  for  work. 
For  the  first  time  in  the  history  of  the  oil  business  the  pro- 
ducers were  united  in  an  organisation,  which,  if  carried  out, 
would  regulate  the  production  of  oil  to  something  like  the 
demand  for  it,  would  prevent  stocks  from  falling  into  the 
hands  of  speculators,  and  would  provide  a  strong  front  to  any 
combination  with  monopolistic  tendencies.  Only  one  thing 
was  necessary  now  to  make  the  producer  a  fitting  opponent  to 
his  natural  enemy,  the  refiner.  That  thing  was  loyalty  to  the 
agency  he  had  established.  The  future  of  the  producer  at  that 
moment  was  in  his  own  hand.  Would  he  stick?  By  every  sign 
he  would.  He  thought  so  himself.  He  had  acted  so  resolutely 
and  intelligently  up  to  this  point  that  even  Mr.  Rockefeller 
seems  to  have  thought  so. 

During  the  entire  three  months  that  the  producers  had  been 
organising,  the  refiners  had  been  making  divers  overtures  to 
them.  In  August  several  of  the  refiners  sought  certain  of  the 
big  producers  and  privately  proposed  a  two-headed  combina- 
tion which  should  handle  the  whole  business,  from  drilling  to 

[118] 


"AN  UNHOLY  ALLIANCE'* 

exportation.  The  proposition  they  made  was  most  alluring  to 
men  suffering  from  low  prices.  "Carry  out  your  plans  to  limit 
your  production  and  guarantee  to  sell  only  to  us,"  said  Mr. 
Rockefeller's  representative,  "and  we  will  give  you  four  dol- 
lars a  barrel  for  your  oil.  We  will  also  establish  a  sliding  scale, 
and  for  every  cent  a  gallon  that  refined  oil  advances  we  will 
give  you  twenty-five  cents  more  on  your  barrel  of  crude.  The 
market  price  of  crude  oil,  when  this  offer  was  made,  was  hover- 
ing around  three  dollars.  "How,"  asked  the  producer,  "can  you 
do  this?"  "We  expect,  by  means  of  our  combination,  to  get  a 
rebate  of  seventy- five  cents  a  barrel,"  was  the  answer.  "But  the 
railroads  have  signed  an  agreement  to  give  no  rebates,"  ob- 
jected the  producers. 

"As  if  the  railroads  ever  kept  an  agreement,"  answered  the 
worldly-wise  refiners.  "Somebody  will  get  the  rebates.  It  is 
the  way  the  railroads  do  business.  If  it  is  to  be  anybody,  we 
propose  it  shall  be  our  combination."  Now  it  was  clear  enough 
to  the  men  approached  that  the  great  body  of  their  associa- 
tion would  never  go  into  any  scheme  based  on  rebates,  and 
they  said  so.  The  refiners  saw  no  disadvantage  in  that  fact. 
"We  don't  want  all  the  producers.  We  only  want  the  big  ones. 
The  small  producer  under  our  arrangement  must  die,  as  the 
small  refiner  must."  The  proposition  never  got  beyond  the 
conference  chamber.  It  was  too  cynical.  Several  conferences 
of  the  same  nature  took  place  later  between  representatives 
of  the  two  interests,  but  nothing  came  of  them.  The  two  asso- 
ciations were  kept  apart  by  the  natural  antagonism  of  their 
ideals  and  their  policy.  Captain  Hasson  and  his  followers  were 
working  on  an  organisation  which  aimed  to  protect  the  weak- 
est as  well  as  the  strongest;  which  welcomed  everybody  who 
cared  to  come  into  the  business ;  which  encouraged  competition 
and  discountenanced  any  sort  of  special  privilege.  Mr.  Rocke- 
feller and  his  associates  proposed  to  save  the  strong  and  elimi- 
nate the  weak,  to  limit  the  membership  to  those  who  came  in 

[119] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

now,  to  prevent  competition  by  securing  exclusive  privileges. 
Their  program  was  cold-blooded,  but  it  must  be  confessed  that 
it  showed  a  much  firmer  grasp  on  the  commercial  practices  of 
the  day,  and  a  much  deeper  knowledge  of  human  nature  as 
it  operates  in  business,  than  that  of  the  producers. 

The  formation  of  the  Producers'  Agency  brought  the  refin- 
ers back  to  the  Oil  Regions  in  greater  earnest  than  ever.  The 
success  of  that  organisation  gave  them  an  active  antagonist, 
one  which,  as  it  held  the  raw  material,  could  at  any  time 
actually  shut  up  their  refineries  by  withholding  oil.  The 
vigour,  the  ability,  the  determination  the  new  organisation 
had  displayed  made  it  a  serious  threat  to  the  domination  Mr. 
Rockefeller  and  his  associates  had  dreamed.  It  must  be  pla- 
cated. On  November  8,  immediately  after  it  was  announced 
that  the  entire  million  dollars'  worth  of  stock  was  taken,  an 
agent  of  the  Standard  Oil  Company  in  Oil  City  was  ordered  to 
buy  oil  from  the  agency — 6,000  barrels  of  oil  at  $4.75  a  barrel 
— and  the  order  was  followed  by  this  telegram  from  Mr. 
Rockefeller: 

"It  has  been  represented  to  us  that  if  we  would  buy  of  the  producers'  agent  at 
Oil  City  and  pay  #4. 75  per  barrel,  they  would  maintain  the  price.  We  are  willing 
to  go  farther  and  buy  only  of  the  producers'  agent,  hence  the  order  we  have  given 
you.  See  Hasson  and  others  and  let  there  be  a  fair  understanding  on  this  point.  We 
will  do  all  in  our  power  to  maintain  prices,  and  continue  to  buy,  provided  our  position 
is  fully  understood.  We  do  this  to  convince  producers  of  our  sincerity,  and  to  assist 
in  establishing  the  market." 

A  more  adroit  move  could  not  have  been  made  at  this 
moment.  This  purchase  was  a  demonstration  that  the  Refiners' 
Association  could  and  would  pay  the  price  the  producers 
asked;  that  they  asked  nothing  better,  in  fact,  than  to  ally 
themselves  with  the  agency.  The  events  of  the  next  three 
weeks,  on  the  contrary,  showed  the  agency  that  it  would  be 
some  time  before  anybody  else  would  pay  them  any  such 

[  120] 


"AN  UNHOLY  ALLIANCE" 

price  as  that  Mr.  Rockefeller  promised.  The  reason  was  evi- 
dent enough.  In  spite  of  the  stopping  of  the  drill,  in  spite  of 
the  thirty  days'  shut-down,  production  was  increasing.  Indeed, 
the  runs  *  for  November  were  greater  than  they  had  ever 
been  in  any  single  month  since  the  beginning  of  the  oil  busi- 
ness. A  large  number  of  wells  under  way  when  the  drill  was 
stopped  had  "come  in  big."  New  territory  had  been  opened 
up  by  unexpected  wildcats.  The  shut-down  had  done  less  than 
was  expected  to  decrease  stocks.  It  was  evident  that  the  Pro- 
ducers' Association  had  a  long  and  severe  task  before  it  to 
bring  the  crude  output  down  to  anything  like  the  demand. 
Could  the  great  body  of  producers  be  depended  upon  to  take 
still  further  measures  to  lesson  their  production,  and  at  the 
same  time  would  they  hold  their  oil  until  the  agency  had  the 
mastery  of  the  situation?  Their  tanks  were  overflowing.  Many 
of  them  were  in  debt  and  depending  on  their  sales  to  meet 
their  obligations — even  to  meet  their  daily  personal  expenses. 
It  was  little  wonder  that  they  grew  restive  as  they  began  to 
realise  that  the  agency  in  which  they  had  seen  immediate 
salvation  from  all  their  ills  could  only  be  made  effective  by 
months  more  of  self-sacrifice,  of  agitation,  of  persistent  effort 
from  every  man  of  them.  With  every  day  they  became  more 
impatient  of  the  bonds  the  agency  had  set  for  them,  and  the 
leaders  soon  realised  that  some  immediate  tangible  results  must 
be  given  the  mass  of  oil  men,  or  there  was  danger  of  a 
stampede. 

A  strong  feature  of  the  genius  of  John  D.  Rockefeller  has 
always  been  his  recognition  of  the  critical  moment  for  action 
in  complicated  situations.  He  saw  it  now,  and  his  representa- 
tives again  came  to  the  creek  seeking  an  alliance.  Their  argu- 
ments, as  they  found  their  way  from  the  private  meetings  into 

*  The  amount  of  production  was  computed  from  the  oil  run  through  the  pipe-lines, 
all  of  which  had  their  gaugers  and  were  supposed  to  report  their  runs  at  regular  in- 
tervals. 

[121] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  press  and  the  street,  ran  something  like  this:  "Our  com- 
bination is  the  only  big  buyer.  We  are  in  the  thing  to  stay, 
and  shall  remain  the  only  big  buyer.  You  might  erect  refin- 
eries and  oppose  us,  but  it  would  take  months,  and  while  you 
are  waiting  how  are  you  going  to  hold  the  producers?  You 
cannot  do  it.  We  can  easily  get  all  the  oil  we  want  to-day  at 
our  own  price  from  the  men  who  sell  from  necessity,  and  yet 
your  agency  is  in  the  first  flush  of  enthusiasm.  Sell  only  to  us 
and  we  will  buy  15,000  barrels  a  day  from  you.  Refuse  an 
alliance  with  us  and  you  will  fail." 

Overwhelmed  by  the  length  and  severity  of  the  struggle 
before  them  if  they  insisted  on  independence,  fearful  lest  the 
scattered  and  restless  producers  could  not  be  held  much 
longer,  convinced  by  their  confident  arguments  that  the  refin- 
ers could  keep  their  promise,  the  council  finally  agreed  to 
a  plan  of  union  which  the  Derrick  dubbed  the  "Treaty  of 
Titusville."  A  terrible  hubbub  followed  the  announcement 
that  a  treaty  was  proposed  and  would  probably  be  adopted 
by  the  association.  The  same  old  arguments  which  had  greeted 
each  overture  from  the  refiners  were  gone  over  again.  It 
would  be  a  monopoly.  The  price  they  offered  for  crude 
depended  upon  their  getting  an  unnaturally  high  price  for 
refined.  The  markets  of  the  world  would  refuse  to  pay  this 
price  when  it  was  discovered  that  it  was  kept  up  by  an  agree- 
ment which  was  contrary  to  the  laws  of  supply  and  demand. 
And,  besides,  the  parties  could  not  trust  each  other.  "Timeo 
Danaos  et  dona  ferentes.  Liberal  translation — Mind  your  eye 
when  the  Cleveland  refiners  get  generous,"  cautioned  the 
Derrick.  As  always,  the  ghost  of  the  South  Improvement 
Company  was  between  them.  On  the  other  hand,  it  was  argued 
that  it  was  Hobson's  choice,  "combine  or  bust,"  there  is  no 
other  market.  We  cannot  wait  for  one.  We  have  a  million 
barrels  of  oil  on  hand — the  refiners  will  take  15,000  bar- 
rels a  day  for  "spot  cash."  And  after  all,   concluded  the 

[  122] 


JAMES  S.   TARR 

Owner  of  the  "Tarr  Farm,"  one  of  the  richest  oil 
territories  on  Oil  Creek. 


WILLIAM   BARNSDALL 

The  second  oil  well  on  Oil  Creek  was  put  down  by 
Mr.  Barnsdall. 


JAMES    S.    MCCRAY 
Owner  of  the  McCray  Farm  near  Petroleum  Centre. 


WILLIAM    A.    ABBOTT 

One  of  the  most  prominent  of  the  early  oil  producers, 
refiners  and  pipe-line  operators 


1 


I 


"AN  UNHOLY  ALLIANCE" 

"philosophical,"  if  you  can't  do  as  well  as  you  want  to,  do  the 
best  you  can. 

On  December  12  the  proposed  treaty  was  laid  before 
the  producers  at  Oil  City.  It  aroused  a  debate  so  acrimonious 
that  even  the  Derrick  suppressed  it.  Captain  Hasson  led  the 
opposition.  In  his  judgment  there  was  but  one  course  for  the 
producers — to  keep  themselves  free  from  all  entanglements 
and  give  themselves  time  to  build  up  solidly  the  structure  they 
had  planned.  If  they  had  followed  his  advice  the  whole  his- 
tory of  the  Oil  Regions  would  have  been  different.  But  they 
did  not  follow  it.  The  treaty  was  ratified  by  a  vote  of  twenty- 
seven  to  seven.  The  excitement  and  the  personalities  the  associ- 
ation indulged  in  at  their  meeting  augured  ill  for  its  future, 
but  when  a  week  later  a  committee  sent  to  see  the  refiners  came 
back  from  New  York  with  a  contract  signed  by  Mr.  Rocke^ 
feller,*  the  president,  and  bearing  with  them  an  order  for 
200,000  barrels  of  oil  at  $3.25,  there  was  a  general  feeling 
that,  after  all,  an  alliance  might  not  be  so  bad  a  thing. 
200,000  barrels  was  a  big  order  and  would  do  much  to 
relieve  their  distress.  Their  formal  sense  was  quieted,  too, 
by  the  assurance  that  the  producers  before  signing  the  con- 
tract had  insisted  that  the  Refiners'  Combination  enter  into 
an  agreement  to  take  no  rebates  as  long  as  the  alliance 
lasted.  The  main  points  of  the  agreement  decided  upon  were, 
that  the  Refiners'  Association  should  admit  all  existing  refiners 
to  its  society,  and  the  Producers'  Association  all  producers 
present  and  to  come — that  the  former  company  should  buy 
only  of  the  latter,  the  latter  sell  only  to  the  former,  and  that 
the  agency  should  bind  all  producers  enjoying  its  privileges 
to  handle  their  oil  through  it.  The  refiners  were  to  buy  such 

Iaily  quantities  as  the  markets  of  the  world  would  take  and 
t  a  price  governed  by  the  price  of  refined,  five  dollars  per  bar- 
*See  Appendix,  Number  17.  Contract  between  Petroleum  Producers'  Association 
id  Petroleum  Refiners'  Association. 
[123] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

rel  when  refined  was  selling  at  twenty-six  cents  a  gallon. 
Either  association  could  discontinue  the  agreement  on  ten 
days'  notice.  The  producers,  before  signing  the  contract,  in- 
sisted that  the  Refiners'  Combination  sign  an  agreement  to  take 
no  rebates  as  long  as  the  alliance  lasted.  This  agreement  in 
regard  to  rebates  read  as  follows: 

"Whereas,  it  is  deemed  desirable  to  execute  a  contract  of  even  date  herewith 
between  the  Petroleum  Producers'  Association  and  the  Petroleum  Refiners'  Association 
for  the  purpose  of  securing  a  co-operation  for  mutual  protection,  it  is  agreed  by  the 
Refiners'  Association  that  sections  one  and  three  of  a  contract  made  the  25th  of 
March,  1872,  between  certain  trunk  lines  of  railroads  and  a  committee  of  producers 
and  refiners  shall  be  and  remain  in  full  force. 

"Petroleum  Refiners'  Association, 

"John  D.  Rockefeller,  President** 

The  sections  of  the  contract  of  the  25th  of  March  referred 
to  agreed  that  no  rebates  or  contracts  or  other  arrangements 
should  be  made  which  would  give  any  party  the  slightest 
difference  in  rates,  and  that  the  rates  should  not  be  changed 
either  for  increase  or  decrease  without  first  giving  Mr.  Hasson, 
the  president  of  the  Producers'  Union,  at  least  ninety  days' 
notice  in  writing.  As  we  now  know,  Mr.  Rockefeller  himself 
was  receiving  rebates  when  he  signed  this  agreement. 

And  now,  at  last,  after  five  months  of  incessant  work,  the 
agency  was  ready  to  begin  disposing  of  oil.  They  set  to  work 
diligently  at  once  to  apportion  the  200,000  barrels  the  re- 
finers had  bought  among  the  different  districts.  It  was  a 
slow  and  irritating  task,  for  a  method  of  apportionment  and  of 
gathering  had  to  be  devised,  and,  as  was  to  be  expected,  it 
aroused  more  or  less  dissatisfaction  and  many  charges  of 
favouritism.  The  agency  had  the  work  well  under  way,  how- 
ever, and  had  shipped  about  50,000  barrels  when,  on  January 
14,  it  was  suddenly  announced  that  the  refiners  had  refused 
to  take  any  more  of  the  contract  oil! 

There  was  a  hurried  call  of  the  Producers'  Council  and  a 

[124] 


"AN  UNHOLY  ALLIANCE" 

demand  for  an  explanation.  A  plausible  one  was  ready  from 
Mr.  Rockefeller.  "You  have  not  kept  your  part  of  the  con- 
tract— you  have  not  limited  the  supply  of  oil* — there  is  more 
being  pumped  to-day  than  ever  before  in  the  history  of  the  re- 
gion. We  can  buy  all  we  want  at  $2.50,  and  oil  has  sold  within 
the  week  at  two  dollars.  If  you  will  not,  or  cannot,  stop  over- 
production, can  you  expect  us  to  pay  your  price?  We  keep 
down  the  output  of  refined,  and  so  keep  up  the  price.  If  you 
will  not  do  the  same,  you  must  not  expect  high  prices." 

What  could  the  producers  reply?  In  spite  of  their  heroic 
measures,  they  had  not  been  able  to  curtail  their  output.  It 
seemed  as  if  Nature,  outraged  that  her  generosity  should  be 
so  manipulated  as  to  benefit  only  the  few,  had  opened  her 
veins  to  flood  the  earth  with  oil,  so  that  all  men  might  know 
that  here  was  a  light  cheap  enough  for  the  poorest  of  them. 
Her  lavish  outpouring  now  swept  away  all  of  the  artificial 
restraints  the  producers  and  refiners  had  been  trying  to  build. 
The  Producers'  Association  seemed  suddenly  to  comprehend 
their  folly  in  supposing  that  when  5,000  barrels  more  of 
oil  was  produced  each  day  than  the  market  demanded  any 
combination  could  long  keep  the  contract  the  refiners  had 
made  with  them;  and  their  unhappy  session,  made  more 
unhappy  by  the  reading  of  bitter  and  accusing  letters  from  all 
over  the  discontented  region,  ended  in  a  complete  stampede 
from  the  refiners,  the  vote  for  dissolving  the  alliance  having 
but  one  dissenting  voice. 

There  were  few  tears  shed  in  the  Oil  Regions  over  the  rup- 
ture of  the  contract.  The  greater  part  of  the  oil  men  had 
called  it  from  the  beginning  an  "unholy  alliance,"  and 
rejoiced  that  it  was  a  fiasco.  If  the  alliance  had  been  all  that 
came  to  an  end,  the  case  would  not  have  been  so  serious,  but  it 

*The  agency  was  pledged  by  its  constitution  to  limit  the  supply  of  crude,  but  this 
stipulation  did  not  appear  in  the  contract  signed  by  the  two  associations.  It  was 
a  verbal  understanding. 

[125] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

was  not.  The  breaking  of  the  alliance  proved  the  death  of  the 
agency  and  the  association.  The  leaders  who  had  disapproved 
of  the  treaty  withdrew  from  active  work;  the  supporters  of  the 
alliance,  demoralised  by  its  failure,  were  glad  to  keep  quiet. 
A  few  spasmodic  efforts  to  stop  the  drill,  to  inaugurate  another 
shut-down,  were  made,  but  failed.  Most  of  the  producers  felt 
that,  as  oil  was  so  low,  their  only  safety  was  in  getting  as 
large  a  production  as  they  could,  and  a  perfect  fever  of 
development  followed.  The  Producers'  Association,  after  ten 
months  of  as  exciting  and  strenuous  effort  as  an  organisation 
has  ever  put  in,  was  snuffed  out  almost  in  a  day.  It  was  to 
be  five  years  before  the  oil  men  recovered  sufficiently  from  the 
shock  of  this  collapse  to  make  another  united  effort.  If  Mr. 
Rockefeller  felt  in  the  fall  of  1872  that  the  :'good  of  the 
oil  business"  required  the  dissolution  of  the  Producers' 
Agency,  he  could  not  have  acted  with  more  acumen  than  he 
did  in  leading  them  into  an  alliance,  and  at  the  psychological 
moment  throwing  up  his  contract. 

Humiliated  as  the  producers  were  by  their  failure,  they 
soon  found  consolation  in  the  knowledge  that  the  Refiners' 
Association  was  in  trouble.  A  serious  thing,  in  fact,  had  hap- 
pened. When  the  official  report  of  the  year's  exports  and 
imports  came  out,  it  was  shown  that  the  exports  of  refined  oil 
had  fallen  off  for  the  first  time  in  the  history  of  the  business. 
In  1871,  132,178,843  gallons  had  been  exported.  In  1872,  only 
118,259,832  were  exported.  Just  as  alarming  was  the  proof 
that  the  shale  and  coal  oil  refineries  of  Europe  had  taken  a 
fresh  start — that  they  were  selling  their  products  more  cheaply 
than  kerosene  could  be  imported  and  sold.  There  was  a  gen- 
eral outcry  from  all  over  the  country  that  Mr.  Rockefeller 
and  his  associates  were  running  the  oil  business  by  keeping 
up  the  price  of  refined  oil  beyond  what  the  price  of  crude 
justified.  The  producers,  eager  for  a  scape-goat,  argued  that 
the  low  price  of  crude  was  due  to  decreased  consumption  as 

[126] 


"AN  UNHOLY  ALLIANCE" 

well  as  over-production,  and  their  ill-will  against  Mr.  Rocke- 
feller flared  up  anew.  In  the  meantime  the  Refiners'  Associ- 
ation was  having  troubles  of  its  own.  The  members  were  not 
limiting  their  output  as  they  had  agreed — that  is,  it  was  dis- 
covered every  now  and  therrthat  a  refinery  was  making  more 
oil  than  Mr.  Rockefeller  had  directed.  Again,  what  was  more 
fatal  to  the  success  of  the  association,  members  sometimes  sold 
at  a  lower  price  than  that  set  by  Mr.  Rockefeller.  These 
restrictions  were  fundamental  to  the  success  of  the  combina- 
tion, and  the  members  were  called  together  at  Saratoga  in 
June,  1873,  and  after  a  long  session  the  association  was 
dissolved. 

There  was  loud  exultation  in  the  unthinking  part  of  the 
Oil  Regions  over  the  dissolution  of  the  refiners.  The  "Junior 
Anaconda"  was  dead.  The  wiser  part  of  the  region  did  not 
exult.  They  knew  that  though  the  combination  might  dis- 
solve, the  Standard  Oil  Company  of  Cleveland  still  controlled 
its  one-fifth  of  the  capacity  of  the  country;  that  not  only  had 
Mr.  Rockefeller  been  able  to  hold  the  twenty  refineries  he 
had  bolted  so  summarily  at  the  opening  of  1872,  but  he  had 
assimilated  them  so  thoroughly  that  he  was  making  enormous 
profits.  Mr.  Rockefeller's  contracts  with  the  Central  Rail- 
road alone  in  1873  and  ^74  obliged  him  for  seven  months 
of  the  year  to  ship  at  least  100,000  barrels  of  refined  oil  a 
month  to  the  seaboard.  As  a  matter  of  fact  he  never  shipped 
less  than  108,000  barrels,  and  in  one  month  of  the  period  it 
rose  to  180,000.*  Now  in  1873  he  made,  at  the  very  lowest 
figure,  three  cents  a  gallon  on  his  oil.  Estimating  his  ship- 
ments simply  at  700,000  barrels  a  year — and  they  were  much 
more — his  profits  for  that  year  were  $1,050,000,  and  this  ac- 
counts for  no  profits  on  about  thirty-five  per  cent,  of  the  Stand- 
ard output,  which  was  sold  locally  or  shipped  Westward. 

*  Testimony  of  H.  M.  Flagler  before  the  Ohio  State  Commission  for  investigating 
railroad  freight  discrimination,  March,  1879.  See  Appendix,  Number  14. 

[127] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Little  wonder  that  the  Cleveland  refiners  who  had  been  snuffed 
out  the  year  before,  and  who  saw  their  plants  run  at  such 
advantage,  grew  bitter,  or  that  gossip  said  the  daily  mail  of 
the  president  of  the  Standard  Oil  Company  was  enlivened  by 
so  many  threats  of  revenge  that  he  took  extraordinary  precau- 
tions about  appearing  unguarded  in  public. 

It  is  worth  noticing  that  these  great  profits  were  not  being 
used  for  private  purposes.  In  1872  the  Standard  Oil  Company 
paid  a  dividend  of  thirty-seven  per  cent,  but  in  1873  they  cut 
it  to  fifteen  per  cent.  The  profits  were  going  almost  solidly 
into  the  extension  and  solidification  of  the  business.  Mr.  j 
Rockefeller  was  building  great  barrel  factories,  thus  cutting 
down  to  the  minimum  one  of  a  refiner's  heaviest  expenses.  He 
was  buying  tank  cars  that  he  might  be  independent  of  the 
vagaries  of  the  railroads  in  allotting  cars.  He  was  gaining 
control  of  terminal  facilities  in  New  York.  He  was  putting  his 
plants  into  the  most  perfect  condition,  introducing  every 
improved  process  which  would  cheapen  his  manufacturing 
by  the  smallest  fraction  of  a  cent.  He  was  diligently  hunting 
methods  to  get  a  larger  percentage  of  profit  from  crude  oil. 
There  was,  perhaps,  ten  per  cent,  of  waste  at  that  period  in 
crude  oil.  It  hurt  him  to  see  it  unused,  and  no  man  had  a 
heartier  welcome  from  the  president  of  the  Standard  Oil 
Company  than  he  who  would  show  him  how  to  utilise  any 
proportion  of  his  residuum.  In  short,  Mr.  Rockefeller  was 
strengthening  his  line  at  every  point,  and  to  no  part  of  it  was 
he  giving  closer  attention  than  to  transportation. 


[128] 


CHAPTER   FIVE 
LAYING  THE  FOUNDATIONS  OF  A  TRUST 

VIDENCE  OF  REAPPEARANCE  OF  REBATES  SOON  AFTER  AGREEMENT  OF 
MARCH  25  IS  SIGNED  —  PRINCIPLE  THOROUGHLY  ESTABLISHED  THAT 
LARGE  SHIPPERS  SHALL  HAVE  ADVANTAGES  OVER  SMALL  SHIPPERS 
IN  SPITE  OF  RAILROADS'  DUTY  AS  COMMON  CARRIERS— AGREEMENT 
WORKED  OUT  BY  WHICH  THREE  ROADS  ARE  TO  HAVE  FIXED  PERCENT- 
AGE OF  EASTERN  SHIPMENTS— OIL  REGIONS  ROBBED  OF  THEIR  GEO- 
GRAPHICAL ADVANTAGE— THE  RUTTER  CIRCULAR— ROCKEFELLER  NOW 
SECRETLY  PLANS  REALISATION  OF  HIS  DREAM  OF  PERSONAL  CONTROL 
OF  THE  REFINING  OF  OIL  —  ORGANISATION  OF  THE  CENTRAL  ASSO- 
CIATION—H.  H.  ROGERS'  DEFENCE  OF  THE  PLAN— ROCKEFELLER'S  QUIET 
AND  SUCCESSFUL  CANVASS  FOR  ALLIANCES  WITH  REFINERS— THE  REBATE 
HIS  WEAPON— CONSOLIDATION  BY  PERSUASION  OR  FORCE— MORE  TALK 
OF   A    UNITED    EFFORT   TO   COUNTERACT    THE   MOVEMENT. 

THROUGHOUT  1872,  while  the  producers  and 
refiners  were  working  out  associations  and  alliances 
to  regulate  the  output  of  crude  and  refined  oil, 
the  freight  rates  over  the  three  great  oil-carrying 
roads  were  publicly  supposed  to  be  those  settled  by  the 
agreement  of  March  25.  Except  by  the  sophisticated  it  was 
believed  that  the  railroads  were  keeping  their,  contracts. 
The  Lake  Shore  and  Michigan  Southern  and  the  New  York 
Central  had  never  kept  them,  as  we  have  seen.  Mr.  Flagler's 
statement  that  the  Standard  received  a  rebate  of  twenty-five 
cents  a  barrel  from  April  1  to  November  15,  1872,  would 
seem  to  show  that  while  with  one  hand  Mr.  Clark  and  Mr. 
Vanderbilt  signed  the  agreement  with  the  oil  men  that  hence- 
forth freights  should  be  "on  a  basis  of  perfect  equality  to  all 
I  [1*9] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

shippers,  producers  and  refiners,  and  that  no  rebates,  draw- 
backs, or  other  arrangements  of  any  character  should  be  made 
or  allowed  that  would  give  any  party  the  slightest  difference 
in  rates  or  discriminations  of  any  character  whatever,"  with 
the  other  they  had  signed  an  arrangement  to  give  a  twenty-five- 
cent  rebate  to  Mr.  Rockefeller!  They  certainly  had  a  strong 
incentive  for  ignoring  their  pledge.  Consider  what  Mr.  Rocke- 
feller could  offer  the  road — sixty  car-loads  of  oil  a  day,  over 
4,000  barrels.  General  Devereux  points  out  in  the  affidavit 
already  mentioned  *  wjiat  this  meant.  It  permitted  them  to 
make  up  a  solid  oil  train  and  run  it  out  every  day.  By  running 
nothing  else  they  reduced  the  average  time  of  a  freight  car 
from  Cleveland  to  New  York  and  return  from  thirty  days  to 
ten  days.  The  investment  for  cars  to  handle  their  freight 
was  reduced  by  this  arrangement  to  about  one-third  what  it 
would  have  been  if  several  different  persons  were  shipping 
the  same  amount  every  day.  Promptness  was  insured  in  for- 
warding and  returning  (a  drawback  of  from  fifty  dollars  to 
$150  a  day  accrued  if  it  was  late,  so  that  the  Standard  was 
bound  to  ship  promptly),  and  all  the  inconvenience  of  dealing 
with  many  shippers  each  with  his  peculiar  whim  or  demand 
was  avoided.  It  was  certainly  worth  a  rebate  to  the  Central, 
and  the  Central  not  having  any  prejudices  in  favour  of  keep- 
ing agreements  because  they  were  agreements  naturally  con- 
ceded what  Mr.  Rockefeller  wanted.  There  was  another  point. 
If  the  Central  did  not  concede  to  Mr.  Rockefeller's  terms 
it  undoubtedly  would  lose  the  freight.  There  was  the  lake  and 
the  canal  and  there  was  the  Erie! 

Now  it  is  not  supposable  that  such  an  arrangement  would 
go  on  long  without  leaking  out  in  the  upper  oil  circles.  We 
have  evidence  that  it  did  not.  Indeed,  there  was  among  cer- 
tain intelligent  oil  men  a  conviction  when  the  agreement  was 
signed  that  the  New  York  roads  would  not  regard  it — that 

*See  Appendix,  Number  3. 
[  I30] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

if  they  did  it  would  ruin  the  refining  business  of  Cleveland. 
W.  T.  Scheide,  a  member  of  the  oil  men's  committee  making 
this  contract,  the  agent  of  one  of  the  largest  oil  shippers  in 
the  country,  Adnah  Neyhart,  in  some  frank  and  suggestive 
testimony  given  to  the  Hepburn  Committee  in  1879,  said  that 
at  the  time  the  arrangement  was  made  he  did  not  think  any- 
body connected  with  the  business  expected  it  would  last.  "My 
reason  for  that  was  that  it  was  an  impossible  agreement,"  said 
Mr.  Scheide.  "The  immediate  effect  of  it  would  have  been 
to  have  utterly  destroyed  fifty-five  per  cent,  of  the  refining 
interest  of  the  country;  that  is  to  say,  Cleveland  and  Pitts- 
burg, which  during  the  previous  four  years  had  shipped  fifty- 
five  per  cent,  of  all  the  oil  out  of  the  Oil  Regions — they,  in 
addition  to  paying  the  rates  of  freights  which  all  other  refiners 
would  have  had  to  pay,  were  required  to  pay  fifty  cents  a 
barrel  on  their  crude  oil  to  their  works."  The  refiners  in 
Cleveland  and  Pittsburg  had  of  course  always  paid  to  get 
crude  oil  to  their  works,  even  the  South  Improvement  Com- 
pany tariffs  provided  for  that,  and  under  that  arrangement 
Cleveland  had  come  to  be  in  1871  the  chief  refining  centre 
of  the  country.  The  chairman  of  the  committee  examining 
Mr.  Scheide  suggested  it  was  a  "temporary  impossibility 
which  would  have  adjusted  itself,"  which  Mr.  Scheide 
admitted.  "  Yes,  sir,  naturally,  it  would  have  adjusted  it- 
self I  suppose,  but  the  effect  was  very  marked  at  the 
time." 

So  strong  was  Mr.  Scheide's  conviction  that  the  New  York 
roads  would  not  stand  the  new  rates  that  on  the  10th  of  April 
he  went  to  the  Pennsylvania  railroad  and  asked  for  a  rebate 
on  Mr.  Neyhart's  crude  shipments — and  got  it.  What  the 
rebate  was  he  does  not  state,  but  Mr.  Flagler  tells  us  in  his 
testimony  *  that  in  December  he  discovered  that  the  Penn- 
sylvania was  shipping  for  as  low  as  $1.05  a  barrel.  And  for 

*  See  Appendix,  Number  14. 

[131] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

one  month  he  got  from  Mr.  Vanderbilt  a  rate  of  $1.05  on  his 
4,000  barrels  a  day. 

Mr.  Scheide  was  also  shipping  refined  oil  over  the  Erie. 
George  R.  Blanchard,  who  in  October,  1872,  became  the 
general  freight  agent  of  the  Erie,  told  the  Hepburn  Com- 
mittee in  1879  that  he  found  on  entering  his  position  that 
$7,000  in  rebates  had  been  paid  Mr.  Scheide  for  Mr.  Ney- 
hart  in  the  month  of  September,  1872,  on  this  refined.  He 
does  not  say  how  long  this  had  been  going  on.  Mr.  Blanchard 
found  at  the  same  time  the  March  25  agreement.  He  asked 
why  it  was  not  observed,  and  the  reply  convinced  him  that 
it  had  not  been  kept  more  than  two  weeks  by  the  Pennsylvania 
and  Central  systems.  "The  representations  made  to  me,"  says 
Mr.  Blanchard,  "also  convinced  the  Atlantic  and  Great  West- 
ern as  to  what  our  rivals  were  doing,  and  that  railway  com- 
pany and  our  own  decided  to  continue  to  pay  the  twenty-four 
cents  per  barrel  drawback  then  being  paid  on  the  rate  of 
$1.35,  provided  by  their  producers'  agreement  of  March  25, 
1872." 

But  Mr.  Blanchard  was  shipping  only  Mr.  Neyhart's  re- 
fined, and  naturally  he  looked  for  more  business  and  was  will- 
ing to  give  a  rebate  to  get  it.  He  soon  had  some  from  another 
of  the  oil  men  who  had  signed  the  agreement  of  March 
25.  This  was  Mr.  Bennett,  of  Titusville,  who  with  J.  D. 
Archbold  and  his  other  partners  entered  into  a  contract  with 
Mr.  Blanchard  to  ship  their  entire  product  for  a  year  at  a  rate 
considerably  below  the  one  agreed  upon  on  March  25.*  The 
contract  was  a  short-lived  one,  for  in  November  Mr.  Bennett 
and  his  partners  turned  their  shipments  over  to  the  Pennsyl- 
vania. The  Erie  had  some  compensation,  however,  in  the  fact 
that  in  July,  1873,  Mr-  Neyhart's  crude  shipments  had  all 
come  to  them.  Mr.  Scheide,  Mr.  Neyhart's  agent,  explained 

*  See  Appendix,  Number   18.    Testimony  of  George  R.   Blanchard   on   rebates 
granted  by  the  Erie  Railroad. 

[  132] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

to  the  Hepburn  Commission  that  he  left  the  Pennsylvania 
because  of  what  he  considered  "very  bad  treatment — a  dis- 
crimination against  us  in  furnishing  us  cars."  The  Pennsyl- 
vania had  indeed  undertaken  to  carry  out  the  clause  in  the 
agreement  of  March  25  which  stipulated  that  there  should  be 
no  discrimination  in  furnishing  cars.  Mr.  Scheide,  considering 
himself  "their  shipper,"  that  is,  shipping  larger  quantities 
more  regularly  than  anybody  else,  and  as  a  consequence  hav- 
ing better  rates,  thought  it  unfair  that  the  cars  should  be 
pro  rated,*  and  left  the  road,  giving  his  business  to  the  Erie, 
where  presumably  he  got  assurances  that  cars  would  be  fur- 
nished to  shippers  according  to  the  quantity  and  regularity 
of  shipments.  Mr.  Scheide's  excellent  testimony  is  good 
evidence  of  how  deep  a  hold  the  principle  that  the  large 
shippers  are  to  have  all  the  advantages  had  taken  hold  of  some 
of  the  best  men  in  the  oil  country,  although  the  oil  country 
as  a  whole  utterly  repudiated  the  "rebate  business."  These 
details,  all  drawn  from  sworn  testimony,  show  how,  before  a 
year  had  passed  after  the  end  of  the  Oil  War,  all  the  roads 
were  practising  discrimination,  how  a  few  shippers  were  again 
engaged  in  a  scramble  for  advantages,  and  how  the  big  ship- 
pers were  bent  on  re-establishing  the  principle  supposed  to 
have  been  overthrown  by  the  Oil  War  that  one  shipper  is  more 
convenient  and  profitable  for  a  road  than  many,  and  this  being 
so,  the  matter  of  a  road's  duty  as  a  common  carrier  has  nothing 
to  do  with  the  question. f 

This  was  the  situation  when 'in  June,  1873,  General  Deve- 
reux,  whom  we  have  met  on  the  Lake  Shore  road,)  became 
president  of  the  Atlantic  and  Great  Western.  Now  at  this 
time  Peter  H.  Watson,  the  president  of  the  South  Improve- 

*See  Appendix,  Number  19.  Testimony  of  W.  T.  Scheide. 

fSee  Appendix,  Number  20.  Statements  of  amounts  paid  for  overcharges  and 
rebates  on  oil  during  the  year  1873  by  the  New  York,  Lake  Erie  and  Western 
Railroad. 

[133] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

ment  Company,  was  president  of  the  Erie.  The  two  at  once 
looked  into  the  condition  of  their  joint  oil  traffic.  They  found 
the  rebate  system  abolished  a  year  before  again  well 
intrenched.  Nevertheless  the  Erie  was  not  doing  much  busi- 
ness. The  entire  shipments  of  oil  over  the  Erie  for  1873  were 
but  762,000  barrels  out  of  a  total  of  4,963,000.  Naturally  they 
went  to  work  to  build  up  a  trade,  and  their  relations  being 
what  they  had  been  with  the  Standard,  the  company  con- 
trolling a  third  of  the  country's  refining  capacity,  they  went 
to  them  to  see  if  they  could  not  get  a  percentage  of  their 
seaboard  shipments  from  Cleveland.  Mr.  Rockefeller  was 
willing  to  give  them  shipments  if  they  would  make  the  rates 
as  low  as  were  given  to  any  of  his  competitors  on  any  of 
the  roads,  and  if  they  would  deliver  his  oil  at  Hunter's  Point, 
Brooklyn,  where  he  had  oil  yards,  and  where  the  Central 
delivered,  or  if  they  would  not  do  that  if  they  would  lease  their 
own  oil  yards  to  him.  There  was  an  excellent  business  reason 
for  making  that  latter  demand,  which  Mr.  Blanchard  ex- 
plained to  the  Hepburn  Commission : 

"The  Standard,"  said  Mr.  Blanchard,  "had  a  force  of  men, 
real  estate,  houses,  tanks  and  other  facilities  at  Hunter's  Point 
for  receiving  and  coopering  the  oil ;  and  they  had  their  cooper- 
age materials  delivered  over  there.  The  arrangement  prior 
to  that  time  was  that  the  Erie  Company  performed  this  ser- 
vice for  its  outside  refiners  at  Weehawken,  for  which  the  Eri< 
Company  made  specific  charges  and  added  them  to  their  rates 
for  freight.  The  Standard  Company  said  to  us:  'We  do  the 
business  at  low  cost  at  Hunter's  Point  because  we  are  expert! 
oil  men  and  know  how  to  handle  it;  we  pay  nobody  a  profit, 
and  cannot  and  ought  not  to  pay  you  a  profit  for  a  service  that 
is  not  transportation  any  more  than  inspecting  flour  or  cotton; 
and  the  New  York  Central  delivers  our  oil  at  that  point.  Now 
if  you  will  deliver  our  oil  at  Hunter's  Point  and  permit  us  to 
do  this  business,  you  may  do  so;  we  want  to  do  that  business, 

[134] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

and  we  cannot  pay  to  the  Erie  Railway  Company  at  Wee- 
hawken  a  profit  on  all  of  those  staves,  heads,  cooperage,  fill- 
ing, refilling  and  inspection,  for  we  have  our  own  forces  of 
men  and  our  own  yards  necessary  for  this  work  in  another 
part  of  the  harbour  of  New  York;  and  it  is  not  a  part  of  your 
business  as  a  carrier,  anyway.' 

"In  lieu  thereof  and  for  the  profits  that  we  could  have 
made  from  the  aggregate  of  these  charges,  we  said  to  them: 
(If  you  will  pay  us  a  fixed  profit  upon  each  one  of  these  barrels 
of  oil  arriving  here,  you  may  take  the  yards  and  run  them 
subject  to  certain  limitations  as  to  what  you  shall  do  for  other 
people  who  continue  to  ship  oil  to  the  same  yards.'  They  were 
only  able  to  make  this  arrangement  with  us  because  of  their 
controlling  such  a  large  percentage  of  shipment,  and  because 
of  permanent  facilities  in  Brooklyn;  if  the  larger  percentage 
of  shipments  had  belonged  to  outside  parties,  and  they  had 
had  no  yards  of  their  own,  we  would  probably  have  retained 
the  yards  ourselves." 

A  contract  was  signed  on  April  17,  1874.  By  it  the  Standard 
agreed  to  ship  fifty  per  cent,  of  the  products  of  its  refineries 
by  the  Erie  at  rates  "no  higher  than  is  paid  by  the  competitors 
of  the  Standard  Oil  Company  from  competing  Western  refin- 
eries to  New  York  by  all  rail  lines,"  and  to  give  all  oil  patrons 
of  the  Erie  system  a  uniform  price  and  fair  and  equal  facili- 
ties at  the  Weehawken  yards.*  It  was  a  very  wise  business  deal 
for  both  parties.  It  made  Mr.  Rockefeller  the  favoured  shipper 
of  a  second  trunk  line  (the  Central  system  was  already  his) 
and  it  gave  him  the  control  of  that  road's  oil  terminal  so  that  \ 
he  could  know  exactly  what  other  oil  patrons  of  the  road  were  / 
doing — one  of  the  advantages  the  South  Improvement  contract  I 
looked  out  for,  it  will  be  remembered.  As  for  the  Erie,  it  tied" 
up  to  them  an  important  trade  and  again  put  them  into  a 

*See  Appendix,  Number  21.  Agreement  of  1874  between  the  Erie  Railroad  system 
and  the  Standard  Oil  Company. 

[135] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

position  to  have  something  to  say  about  the  division  of  the 
oil  traffic,  the  bulk  of  which  outside  of  the  Standard  Oil 
Company  the  Pennsylvania  was  handling.  In  connection  with 
the  Central  the  Erie  now  said  to  the  Pennsylvania  that  hence- 
forth they  proposed  to  maintain  their  position  as  oil  shippers. 

The  natural  result  of  the  determination  of  the  Central  and 
Erie  to  get  from  the  Pennsylvania  a  percentage  of  its  freight 
was,  of  course,  increased  cutting,  and  it  looked  as  if  a  rate 
war  was  inevitable.  At  this  juncture  Colonel  Potts  of  the  Em- 
pire Transportation  Company,  handling  all  of  the  Pennsyl- 
vania freight,  suggested  to  his  rivals  that  it  would  be  a 
favourable  time  for  the  three  trunk  lines  to  pool  their  sea- 
board oil  freight.  In  the  discussions  of  this  proposition,  which, 
of  course,  involved  a  new  schedule  of  rates,  there  being  now 
practically  none,  it  was  suggested  that  henceforth  freights  be 
so  adjusted  that  they  would  be  equal  to  all  refiners,  on  crude 
and  refined  from  all  points.  Such  an  equalisation  seems  at  first 
glance  an  unsolvable  puzzle.  The  agents  found  it  intricate 
enough.  Throughout  the  summer  of  1874  they  worked  on  it, 
holding  meetings  at  Long  Branch  and  Saratoga  and  calling 
into  their  counsels  a  few  of  the  leading  refiners,  pipe-line  men 
and  producers  whom  they  could  trust  to  keep  quiet  about 
the  project. 

By  the  first  of  September  they  had  an  agreement  worked 
out  by  which  each  of  the  three  roads  was  to  have  a  fixed  per- 
centage of  Eastern  shipments.  The  rates  to  the  seaboard  were 
to  amount  to  the  same  for  all  refiners  wherever  located.  That 
is,  to  use  one  of  the  illustrations  employed  by  Mr.  Blanchard 
in  explaining  the  scheme  to  the  Hepburn  Commission:  "Sup- 
pose 100  barrels  of  refined  oil  to  have  been  sent  from  Cleveland 
to  New  York  by  rail;  the  consignee  was  required  to  first  pay 
freight  therefor  at  New  York  upon  delivery  $1.90;  to  make 
this  quantity  of  refined  oil  at  that  time,  he  had  already  paid 
freight  on  say  133^  barrels  of  crude  oil  from  the  pipes  to 

[136] 


|3 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

Cleveland  at  thirty-five  cents  per  barrel  or  say  $46.67;  he 
had  therefore  paid  out  from  the  pipes  to  the  refinery  and 
thence  to  New  York  by  transportation  only,  on  100  barrels 
refined  and  the  quantity  of  crude  oil  required  to  make  it, 
$236.67  or  $2.37  per  barrel ;  therefore,  at  the  end  of  the  month 
we  refunded  the  $46.67  already  paid  on  the  crude  oil.  So  that 
the  rate  paid  net  was  $1.90  to  him  and  all  other  refiners."  ^ 

In  case  of  the  refineries  situated  at  the  seaboard  the  cost 
of  carrying  from  the  Oil  Regions  the  133^2  barrels  of  crude 
oil  required  to  make  100  barrels  of  refined  was  made  exactly 
the  same  as  carrying  the  100  barrels  of  refined  made  in 
the  West  and  transported  East.  This  really  amounted  to  charg- 
ing nothing  for  getting  the  crude  oil  to  a  refinery  wherever 
it  was  situated,  as  the  following  clause  in  the  agreement 
shows:  "The  roads  transporting  the  refined  oil  shall  refund 
to  the  refiners  as  a  drawback  the  charges  paid  by  them  upon 
the  crude  oil  reaching  their  refineries  by  rail."  This  para- 
graph provided  for  this  crude  rebate  contained  a  second 
clause,  which  read:  "And  the  roads  transporting  through 
crude  oil  to  the  Eastern  seaboard  shall  refund  to  the  ship- 
pers twenty-two  cents  per  barrel;  both  of  said  drawbacks 
to  be  paid  only  on  oil  reaching  the  initial  points  of  rail 
shipment,  through  pipes,  the  owners  of  which  maintain 
agreed  rates  of  pipage."  The  paragraph  announced  two  new 
and  startling  intentions  on  the  part  of  the  oil-carrying  roads : 
first,  that  they  intended  to  strip  the  Oil  Regions  of  the  advan- 
tage of  geographical  position  at  the  wells  by  sending  oil  free 
to  Cleveland  and  Pittsburg,  New  York  and  Philadelphia,  at 
the  same  time  leaving  these  cities  the  advantages  accruing 
from  their  position  as  manufacturing  centres  and  close  to 
domestic  markets;  second,  that  they  had  entered  into  a  com- 
bination with  certain  pipe-lines  to  drive  certain  others  out 
of  existence. 

Mr.  Blanchard  gave  the  reasons  of  these  two  revolutionary 

[  137] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

moves  to  the  Hepburn  Committee.  It  was  "urgently  repre- 
sented to  the  trunk  lines,"  he  said,  "by  some  refiners  at  the 
West  as  well  as  by  others  at  the  seaboard,  and  also  by  crude 
shippers  and  receivers  and  by  owners  of  pipe-lines,  that  it 
was  in  every  way  desirable  that  the  refiners  of  Cleveland  and 
Pittsburg,  and  those  at  the  seaboard  be  put  upon  a  basis  of 
equalisation  in  the  gross  rates  of  transportation  to  and  from 
the  refineries."  Now  to  do  this  the  element  of  distance  had 
to  be  disregarded.  Cleveland  was  150  miles  west  of  the  Oil 
Regions,  but  she  must  be  treated  as  if  she  were  at  the  same 
distance  from  the  seaboard.  As  soon  as  the  proposition  was 
made,  certain  of  the  refiners  and  producers  objected  unless  the 
railroads  went  further  and  equalised  rates  on  coal,  acids, 
cooperage,  etc.  This,  however,  the  roads  declined  to  do. 

As  for  the  second  clause — the  rebate  on  all  oil  coming  from 
pipes  which  kept  up  a  fixed  pipage — it  came  about  in  this 
way.  While  the  railroad  men  were  in  conference  at  Long 
Branch,  Henry  Harley,  the  president  of  the  Pennsylvania 
Transportation  Company,  came  to  them  and  said  that  he 
believed  the  scheme  of  equalisation  could  not  be  carried  out 
unless  some  kind  of  an  alliance  was  made  with  the  pipe-lines. 
There  had  been  a  large  increase  in  the  number  of  pipes  in 
the  four  or  five  years  preceding,  and  a  situation  had  arisen 
not  unlike  that  in  every  other  branch  of  the  oil  business.  There 
was  perhaps  twice  the  pipe  capacity  needed  for  gathering  all! 
the  oil  produced,  and  as  the  pipes  were  under  at  least  a  dozeni 
different  managements,  each  fighting  for  business,  the  result! 
was,  of  course,  just  what  it  had  been  on  the  railroads  and: 
in  the  markets — severe  cutting  of  prices,  rebates,  special  se-J 
cret  arrangements,  confusion  and  loss.  It  had  been  only  nine| 
years  since  the  first  pipe-line  had  been  a  success,  and  consider-^ 
ing  the  phenomenal  growth  of  the  business  and  the  important 
part  the  pipe  played  in  it,  it  was  of  course  a  situation  natural; 
enough.  Like  the  overgrowth  of  refining  and  of  production,  il 

[138] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

was  something  only  time  and  solidification  of  business  could 
remedy. 

Mr.  Harley  laid  the  situation  before  the  railroad  men  and 
said  to  them :  "We  want  you  to  help  us  keep  up  an  even  and 
equal  pipage  rate.  Here  we  are  representatives  of  the  nine 
most  important  lines  in  the  Oil  Regions.  We  want  to  put 
a  stop  to  cutting  and  keep  up  a  rate  of  thirty  cents.  Can't 
you  help  us?"  Now  up  to  this  time  the  railroad  had  had 
nothing  to  do  with  pipe-line  charges.  It  was,  and  still  is, 
the  custom  for  the  buyer  of  the  oil  to  pay  the  pipage,  that 
is,  the  oil  producer  on  running  the  oil  into  the  pipe-line 
received  a  credit  certificate  for  the  oil.  If  he  held  it  in  the 
line  long  he  paid  a  storage  charge.  When  he  sold  the  oil, 
the  line  ran  it,  and  the  buyer  paid  the  charge  for  running. 
Now  the  United  Pipe  Lines  proposed  to  the  railroads  a 
through  rate  from  the  wells  to  the  seaboard  as  low  as  they 
currently  made  from  the  receiving  points  on  the  railway,  the 
pipes  to  get  twenty  per  cent,  of  this  through  rate.  The  rail- 
roads were  to  agree  not  to  receive  oil  from  buyers  except  at 
as  high  a  rate  as  the  pipes  charged;  and  to  allow  no  pipe-line 
outside  of  the  alliance  a  through  rate  from  the  wells.  The 
memorandum  said  squarely  that  the  intent  and  purpose  of  this 
was  to  make  the  United  Pipes  the  sole  feeders  of  the  railroads. 
It  was  a  plan  not  unlike  the  South  Improvement  Company 
in  design — to  put  everybody  but  yourself  out  of  business,  and 
it  had  the  merit  of  stating  its  intent  and  purpose  with  perfect 
candour.* 

The  railroad  men  seem  not  to  have  objected  to  the  purpose, 
only  to  the  terms  of  the  proposed  arrangement.  Mr.  Blanchard 
told  the  pipe  committee  that  he  regarded  it  as  the  most  violent 
attempt  on  the  part  of  the  tail  to  wag  the  dog  that  he  had 
ever  seen,  and  the  representatives  of  the  other  roads  agreed. 

*  See  Appendix,  Number  22.    Agreement  of  1874  between  the  railroads  and  pipe- 
lines. 

[139] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

They  saw  at  once,  however,  how  much  more  solid  their  own 
position  would  be  if  they  could  be  sure  that  no  pipe-line  deliv- 
ering to  them  would  cut  its  rate,  if  there  could  be  in  effect  a 
through  rate  from  the  wells,  and  after  some  discussion  they 
proposed  to  the  pipe-lines  to  add  twenty-two  cents  a  barrel 
to  the  rail  charges ;  that  is,  if  the  rate  to  the  seaboard  was  $1.25, 
to  collect  from  the  shipper  $1.47,  and  in  case  he  could  show 
that  he  had  taken  his  oil  from  one  of  the  United  Pipes  to  give 
him  a  rebate  of  twenty-two  cents.  Mr.  Blanchard  said  that 
they  proposed  to  do  this  until  proof  was  had  that  the  associ- 
ated pipe-lines  were  acting  in  good  faith.  Of  course  this 
arrangement  did  not  change  the  pipe-lines'  methods  of  collect- 
ing in  the  least.  It  simply  forced  a  uniform  charge,  and  this 
charge  was  to  be,  it  should  be  noticed,  regardless  of  distance. 
The  charge  for  collecting  and  delivering  oil  was  to  be  thirty 
cents  a  barrel  whether  it  was  carried  one  or  ten  miles — a 
practice  which  prevails  to-day. 

While  these  negotiations  were  going  on,  the  Oil  Regions 
as  a  whole  was  troubled  by  a  vague  rumour  that  freight  rates 
were  to  be  advanced.  In  the  two  years  since  the  Oil  War  the 
region,  as  a  whole,  had  adjusted  itself  to  the  tariff  schedule 
of  March  25,  1872,  and  was  doing  very  well  though  working 
on  a  very  much  smaller  margin  of  profits  than  ever  before. 
The  margin  was  sufficient,  however,  to  keep  the  refineries  in 
the  valley  running  most  of  the  time,  and  several  of  the  large 
ones  were  increasing  their  plants.  Detailed  accounts  of  the 
condition  of  the  works  are  to  be  had  in  the  newspapers  of  the 
day.  Thus,  in  the  summer  of  1874  an  editor  of  the  Oil  City 
Derrick  made  a  tour  of  the  creek  refineries  and  reported 
all  of  the  larger  ones  in  Titusville  and  Oil  City  as  prosperous 
and  growing,  and  the  small  ones  in  the  little  towns  between 
these  two  points  as  "jogging  along  pleasantly."  The  keen  com- 
petition between  the  different  refining  points  made  it  neces- 
sary to  do  business  with  economy,  and  a  rumour  of  a  raise  of 

[140] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

freight  rates  naturally  was  looked  on  with  dread.  It  was  not 
until  September  12,  however,  that  the  new  arrangements 
were  made  known,  and  this  was  some  time  earlier  than  was 
intended.  The  slip  came  about  in  this  way.  The  general 
freight  agent  of  the  New  York  Central  road,  James  H. 
Rutter,  sent  out  on  September  9  a  private  circular  announc- 
ing the  new  arrangement,*  an  advance  of  fifty  cents  a  barrel 
on  refined  oil  shipped  to  the  seaboard,  no  corresponding 
advance  for  Cleveland  and  Pittsburg,  a  rebate  of  the  cost  of 
getting  oil  to  the  refineries  and  a  rebate  of  twenty-two  cents  to 
those  who  patronised  certain  pipe-lines.  And  to  this  new 
schedule  was  appended  this  consoling  paragraph :  "You  will 
observe  that  under  this  system  the  rate  is  even  and  fair  to  all 
parties,  preventing  one  locality  taking  advantage  of  its  neigh- 
bour by  reason  of  some  alleged  or  real  facility  it  may  possess. 
Oil  refiners  and  shippers  have  asked  the  roads  from  time  to 
time  to  make  all  rates  even  and  they  would  be  satisfied.  This 
scheme  does  it  and  we  trust  will  work  satisfactorily  to  all." 
Among  the  refiners  to  whom  the  circular  went  was  M.  N. 
Allen  of  Titusville.  Now  Mr.  Allen  was  the  editor  of  an 
aggressive  and  lively  newspaper — the  Courier.  He  had  fought 
rings  and  deals  from  the  beginning  of  his  career  as  a  refiner 
and  as  an  editor.  He  had  been  one  of  the  strong  opponents 
of  the  South  Improvement  Company  and  of  the  Refiners' 
Association  which  followed,  and  he  saw  at  once  the  cloven 
foot  in  the  Rutter  circular  and  hastened  to  denounce  it  in  a 
strong  editorial: 

If  by  an  agreement  of  the  New  York  Central,  the  Erie,  and  the  Pennsylvania 
Railway  Companies,  crude  oil — delivered  from  the  Titusville  pipe — should  be  hauled 
from  Titusville  to  Chicago,  and  there  refined,  and  the  refined  product  then  hauled  to 
New  York,  all  at  two  dollars  a  barrel,  for  the  refined  thus  carried,  it  would  be  placing, 
by  the  railway  companies,  Chicago  refiners  upon  the  same  level  with  the  Titusville 
refiners  who,  on  and  after  October  I,  shall  ship  to  New  York  refined  made  from 

*  See  Appendix,  Number  23.    The  Rutter  circular. 

[hi] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

crude  oil  taken  from  the  Titusville  pipe.  The  new  freight  arrangement  does  not  make 
such  provision  for  refiners  at  Chicago.  But  a  Cleveland  refiner  may  come  to  Titusville 
and  buy  oil  for  delivery  from  the  Titusville,  the  Pennsylvania,  the  Church  Run,  or  the 
Octave  pipes,  at  this  point,  take  it  to  Cleveland,  and,  after  refining,  carry  the  product 
to  the  seaboard  at  the  same  expense  of  freight,  all  told,  that  a  refiner  here,  taking  his 
crude  oil  directly  from  the  above  pipes,  would  have  in  placing  his  refined  oil  at  the 
seaboard.  This  is  stating  the  matter  exactly,  and  we  see  no  necessity  for  comment 
hereupon. 

Again,  1,000  barrels  of  crude  oil  are  to  be  carried  to  the  seaboard  for  the  same  amount 
of  money  that  will  be  required  for  carrying  there  715  barrels  of  refined,  notwithstanding 
that  crude  oil  is  a  much  more  hazardous  article  of  freight,  from  fire,  than  refined.  If 
this  is  not  a  very  large  discrimination  in  favour  of  seaboard  refiners,  for  which  there 
is  no  compensation  given  to  refiners  in  the  Oil  Region,  our  perceptions  are  utterly  weak. 

Now,  before  putting  into  effect  this  new  freight  arrangement,  it  may  be  well  for  the 
railway  officials  having  the  matter  in  charge  to  take  into  consideration  a  certain 
little  article  of  agreement,  which  the  people  of  Pennsylvania,  on  the  16th  day  of 
December  last,  entered  into  among  themselves,  respecting  railroads  in  this  state.  In 
Article  17,  Section  7,  of  our  new  constitution  is  the  following  decree  of  the  sovereign 
people  of  this  commonwealth:  "No  discrimination  in  charges  or  facilities  for  trans- 
portation shall  be  made  between  transportation  companies  and  individuals,  or  in 
favour  of  either,  by  abatement,  drawback  or  otherwise." 

Petroleum  is  a  product  of  this  state,  and  transportation  companies  in  taking  it 
away  must  respect  the  fundamental  law  of  the  state.  And,  while  we  ask  for  no  favours, 
always  supporting  free  trade  from  principle,  speaking  in  behalf  of  the  refining  interests 
of  the  Oil  Region,  we  do  not  propose  quietly  to  submit  to  any  discrimination  by  trans- 
portation companies,  doing  business  in  the  state,  against  our  interests.  If  by  reason 
of  our  position  we  possess  advantages  for  refining  oil  here,  over  refiners  outside,  we 
have  strong  objections  against  the  action  of  the  railway  companies  in  taking  from  us 
such  advantages,  by  requiring  us  to  pay  for  hauling  a  given  quantity  of  oil  as  much 
as  they  require  of  Cleveland  refiners  for  hauling  the  same  amount  of  oil  300 
miles  greater  distance;  or  for  requiring  us  to  pay  as  much  for  hauling  715  barrels  of 
refined  oil  as  they  require  for  hauling  1,000  barrels  of  crude  oil  the  same  distance. 
If  the  railroad  companies  will  make  all  expenses  of  refining  oil  equal  to  all  points, 
we  shall  be  satisfied.  If  they  will  make  the  price  of  sulphuric  acid  i|  cents  a  pound, 
the  same  as  it  is  in  New  York,  instead  of  i\  cents;  if  they  will  deliver  caustic  soda 
here  free  of  freight  from  New  York;  if  they  will  put  paints  and  glues  here  at  the  same 
prices  as  those  articles  sell  for  in  New  York;  if  they  will  put  staves  and  heading  and 
hoops  for  barrels  here  at  the  same  figures  those  articles  cost  in  Cleveland,  whether 
they  do  all  these  by  giving  us  rebates  sufficient  to  cover  all  differences  now  against  us, 
or  in  any  other  way  that  will  bring  the  same  results,  we  will  accept  the  new  arrange- 

[142] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

ment  without  complaint.  Until  this  shall  be  done  we  shall  ask  the  railway  companies 
in  hauling  oil  to  confine  themselves  to  legitimate  business,  and  to  obey  the  new  consti- 
tution, in  letter  and  spirit.  It  will  behoove  our  citizens  to  see  that  their  new  constitu- 
tion is  carefully  respected. 

We  are  opposed  to  the  new  arrangement  for  the  large  advance  in  the  price  of  freight 
upon  oil.  If  the  railroad  companies  have  lost  money  in  carrying  oil  for  the  Cleveland 
refineries  during  several  years  past,  let  not  the  whole  petroleum  interest,  in  its  depressed 
condition,  be  required  to  sustain  the  penalty.  We  submit  to  the  railway  managers 
whether  it  is  not  right  to  charge  for  hauling  goods  in  proportion  to  the  distance  hauled, 
allowing  a  small  discount,  perhaps,  upon  the  rate  per  mile  for  the  greater  distance. 

Our  remarks  upon  this  subject  may  have  the  colour  of  assurance,  but,  from  the 
large  majority  given  last  winter  in  favour  of  the  new  constitution  of  this  state,  we  have 
great  confidence  that  the  people  will  not  part  with  their  sovereign  rights,  nor  allow 
themselves  to  be  ruled  by  King  Pool. 

At  first  the  Oil  Region  was  puzzled  by  the  Rutter  circular. 
It  certainly  was  plausible.  Was  it  not  true  that  every  man 
shared  equally  under  it?  As  the  days  passed,  the  dazed  mental 
condition  into  which  it  had  thrown  the  oil  men  cleared  up. 
Mr.  Allen's  editorials  began  to  take  effect.  The  pipe-lines  left 
out  of  the  pool  began  to  ask  how  it  could  be  legal  that  the 
railroads  should  enter  into  an  arrangement  which  obviously 
would  drive  them  out  of  business.  The  creek  refiners  began 
to  ask  by  what  right  the  advantage  of  geographical  position  at 
the  wells  should  be  taken  from  them,  and  Cleveland  be 
allowed  to  retain  the  advantages  of  her  proximity  to  the 
Western  market;  Pittsburg  her  position  on  the  Ohio  River 
and  the  market  it  commanded;  all  of  the  cities  the  advantage 
of  their  proximity  to  great  local  markets  and  to  such  neces- 
sary supplies  as  barrels  and  acids.  Besides,  was  it  constitu- 
tional for  the  railroads  thus  to  regulate  interstate  commerce? 
Was  not  the  arrangement,  as  far  as  the  Pennsylvania  was 
concerned,  plainly  prohibited  by  the  new  constitution  of  the 
state  of  Pennsylvania?  The  producers  slowly  began  to  realise, 
too,  that  the  Rutter  circular,  like  the  South  Improvement 
charter  and  contracts,  did  not  recognise  them  as  a  body.  The 

[143] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

contract  of  March  25,  1872,  provided  that  the  rates  fixed 
should  not  be  "liable  to  any  change  either  for  increase  or 
decrease  without  first  giving  to  William  Hasson,  president  of 
the  Producers'  Union,  at  Oil  City,  at  least  ninety  days'  notice 
in  writing  of  such  contemplated  change."  This  agreement 
was  totally  ignored.  It  was  an  "insolent  equalisation,"  the  oil 
men  concluded,  and  the  sum  total  of  their  dissatisfaction 
finally  found  expression  at  a  mass-meeting  at  Parker's  Land- 
ing, on  October  2.  Directly  after  this  meeting  a  committee  ap- 
pointed sent  to  Messrs.  Scott,  Vanderbilt  and  Jewett,  the  new 
president  of  the  Erie,  letters  calling  their  attention  to  the  Rut- 
ter  circular,  and  stating  the  objections  of  the  producers  to  it. 
These  letters  sent  on  October  6  received  no  attention  from 
any  of  the  railroad  presidents  addressed  for  over  three  weeks, 
when  the  following  was  received  from  the  Pennsylvania : 

Gentlemen: — Your  communication  of  the  6th  inst.,  to  Thomas  A.  Scott,  president, 
was  received,  and  has  been  referred  to  me. 

In  establishing  the  recent  rates  and  arrangements  for  the  transportation  of  oil,  the 
object  which  was  at  all  times  kept  in  view  was  to  place  all  interests  on  an  equality, 
giving  to  no  one  an  undue  advantage  over  any  other. 

We  believe  that  this  object  has  been  accomplished,  and  that  by  adhering  to  our 
present  rates  the  interests  both  of  the  producers,  refiners  and  transporters  will  be 
promoted. 

Very  truly  yours, 

A.  J.  Cassatt 


T. 


"Brief,  tardy  and  unsatisfactory,"  was  the  Derrick's  ch 
acterisation  of  Mr.  Cassatt's  letter.  It  was  evidence  to  the 
oil  men  that  if  anything  was  to  be  done  to  break  the  new 
tariff  it  would  have  to  be  done  in  court,  for  the  railroads 
meant  to  stand  by  their  creation. 

In  this  discussion  of  the  Rutter  circular  Mr.  Rockefeller's 
name  scarcely  appeared.  It  was  known  that  he  had  been 
admitted  to  the  conferences  at  which  the  tariff  was  arranged. 
This  was  taken  as  a  matter  of  course.  There  was  nothing 

[144] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

which  concerned  the  oil  business  which  John  Rockefeller  was 
not  on  the  inside  of.  Mr.  Blanchard  later  stated  that  the 
'crude  equivalent"  scheme  was  suggested  by  certain  Western 
refiners.  The  tremendous  advantage  Cleveland  secured  by 
the  new  arrangement,  practically  300  miles  of  free  transporta- 
tion, seemed  to  prove,  too,  that  Mr.  Rockefeller  had  not  been 
inactive  during  the  conference.  Whether  he  had  or  had  not 
suggested  the  points  in  the  "Rutter  circular"  so  advantageous 
to  his  interests,  he  used  them  now  to  aid  him  in  accomplishing 
one  of  the  shrewdest  and  most  far-reaching  moves  of  his  life 
—the  move  which  was  to  lead  at  last  to  the  realisation  of  his 
Great  Purpose — the  concentration  of  the  oil  business  in  his 
own  hands.  For  Mr.  Rockefeller,  quiet  as  he  had  been  since 
the  breaking  up  of  the  Refiners'  Association  in  the  summer  of 
1873,  had  by  no  means  given  up  the  idea  of  doing  for  the 
refining  interest  of  the  whole  country  what  he  had  done  for 
that  of  Cleveland  through  the  South  Improvement  Company. 
Mr.  Rockefeller  has  shown  repeatedly  in  his  conquering 
business  career  remarkable  ability  to  learn  from  experience. 
The  breaking  up  of  the  Refiners'  Association  may  have  seemed 
a  disaster  to  him.  He  did  not  allow  it  to  be  a  profitless  disaster. 
He  extracted  useful  lessons  from  the  experience,  and,  armed 
with  this  new  wisdom,  bent  his  whole  mind  to  working  out 
a  third  plan  of  campaign.  He  now  knew  that  he  could  not 
hope  to  make  again  so  rich  a  haul  as  he  had  made  through  the 
defunct  South  Improvement  scheme.  The  experience  of  the 
past  year  with  the  refiners  convinced  him  that  it  would  take 
time  to  educate  them  to  his  idea  of  combination;  but  he  had 
learned  who  of  them  were  capable  of  this  education.  As  for 
:he  producers,  the  alliance  attempted  with  them  was  enough 
to  demonstrate  that  they  would  never  endure  long  the  re- 
straints of  any  association.  Besides,  the  bulk  of  them  still  held 
the,  to  him,  unpractical  belief  that  rebates  were  wrong.  Mr. 
Rockefeller  had  also  re-learned  in  these  eighteen  months 

[145] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

what  he  knew  pretty  well  before,  that  the  promise  to  give  or 
take  away  a  heavy  freight  traffic  was  enough  to  persuade  any 
railroad  king  of  the  day  to  break  the  most  solemn  compact. 

With  all  these  reflections  fresh  in  mind,  Mr.  Rockefeller 
again  bent  over  a  map  of  the  refining  interests  of  the  United 
States.  Here  was  the  world  he  sighed  to  conquer.  If  we  may 
suppose  him  to  have  begun  his  campaign  as  a  great  general 
with  whom  he  has  many  traits  in  common — the  First  Napo- 
leon— used  to  begin  his,  by  studding  a  map  with  red-headed 
pegs  marking  the  points  he  must  capture,  Mr.  Rockefeller's 
chart  would  have  shown  in  and  around  Boston  perhaps  three 
pegs,  representing  a  crude  capacity  of  3,500  barrels;  in  and 
around  New  York  fifteen  pegs,  a  capacity  of  9,790  barrels; 
in  and  around  Philadelphia  twelve  pegs,  a  capacity  of  2,061 
barrels;  in  Pittsburg  twenty-two  pegs,  a  capacity  of  6,090 
barrels;  on  the  creek  twenty-seven  pegs,  a  capacity  of  9,231 
barrels.*  His  work  was  to  get  control  of  this  multitude  of1 
red  pegs  and  to  fly  above  them  the  flag  of  what  the  irreverent 
call  the  "holy  blue  barrel. "  + 

Some  time  in  the  summer  of  1874,  after  it  had  become  cer- 
tain that  Colonel  Potts's  plan  for  an  equalisation  of  oil  freights 
would  be  carried  out,  Mr.  Rockefeller  wrote  to  his  former 
colleague  in  the  South  Improvement  Company,  W.  G.  War-j 
den,  of  Philadelphia,  telling  him  he  wanted  to  talk  over; 
the  condition  of  the  oil  business  with  him,  and  inviting  him 
to  bring  Charles  Lockhart,  of  Pittsburg,  to  that  Mecca  of 
American  schemers,  Saratoga,  for  a  conference  with  him  and 
Mr.  Flagler.  Mr.  Warden  hesitated.  He  had  been  much 
abused  for  his  relation  with  the  South  Improvement  Com- 
pany. He  had  seen  the  National  Refiners'  Association  fail. 
He  had  begun  to  feel  a  distaste  for  combination.  Besides,  he 

*  These  figures  are  from  Henry's  "  Early  and  Later  History  of  Petroleum,"  pub- 
lished in  1873. 

t  The  barrels  of  the  Standard  Oil  Company  are  painted  blue. 

[146] 


GEORGE   H.    BISSELL 

Founder  of  the  first  oil  company  in  the  United 

States. 


JONATHAN    WATSON 

One  of  the  owners  of  the  land  on  which  the  first 
successful  well  was  drilled  for  oil. 


SAMUEL   KIER 

The  first  petroleum  refined  and  sold  for  lighting 
purpose  was  made  by  Mr.  Kier  in  the  '50s  in  Pitts- 
burg. 


JOSHUA   MERRILL 

The  chemist  and  refiner  to  whom  many  of  the 
most  important  processes  now  in  use  in  making 
illuminating  and  lubricating  oils  are  due. 


V 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

was  doing  very  well  in  Philadelphia.  However,  after  some 
hesitation,  he  and  Mr.  Lockhart  went  to  Saratoga.  The  four 
gentlemen  breakfasted  together  and  later  strolled  out  to  a 
pavilion.  Here  they  discussed  again,  as  they  had  nearly  three 
years  before,  when  they  prepared  the  South  Improvement 
assault,  the  condition  of  the  oil  business. 

Mr.  Rockefeller  now  had  something  besides  a  theory  to 
present  to  the  gentlemen  he  wished  to  go  into  his  third  scheme. 
He  had  the  most  persuasive  of  all  arguments — an  actual 
achievement.  "Three  years  ago,"  he  could  tell  them,  "I  took, 
over  the  Cleveland  refineries.  I  have  managed  them  so  that 
to-day  I  pay  a  profit  to  nobody.  I  do  my  own  buying,  I  make 
my  own  acid  and  barrels,  I  control  the  New  York  terminals 

both  the  Erie  and  Central  roads,  and  ship  such  quantities 
that  the  railroads  give  me  better  rates  than  they  do  any  other, 
shipper.  In  1873  I  shipped  over  700,000  barrels  by  the  Cen- 
tral, and  my  profit  on  my  capitalisation,  $2,500,000,  was  over 
$1,000,000.  This  is  the  result  of  combination  in  one  city.  The 
railroads  now  have  arranged  a  new  tariff,  by  which  they  mean 
to  put  us  all  on  an  equal  footing.  They  say  they  will  give 
no  rebates  to  anyone,  but  if  we  can  join  with  Cleveland  the 
strongest  forces  in  other  great  shipping  points,  and  apply  to 
them  the  same  tactics  I  have  employed,  we  shall  become  the 
largest  shipper,  and  can  demand  a  rebate  in  return  for  an 
equal  division  of  our  freight.  We  proved  in  1 872-1 873  that 
we  could  not  do  anything  by  an  open  association.  Let  us 
who  see  what  a  combination  strictly  carried  out  will  effect 
unite  secretly  to  accomplish  it.  Let  us  become  the  nucleus  of 
a  private  company  which  gradually  shall  acquire  control  of 
all  refineries  everywhere,  become  the  only  shippers,  and  conse- 
quently the  master  of  the  railroads  in  the  matter  of  freight 
rates."  It  was  six  hours  before  the  gentlemen  in  confer- 
ence left  the  pavilion,  and  when  they  came  out  Mr.  War-" 
In  and  Mr.  Lockhart  had  agreed  to  transfer  their  refineries 
[147] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

in  Philadelphia  and  Pittsburg  to  the  Standard  Oil  Company, 
of  Cleveland,  taking  stock  in  exchange.  They  had  also  agreed 
to  absorb,  as  rapidly  as  persuasion  or  other  means  could  bring 
it  about,  the  refineries  in  their  neighbourhood.  Their  union 
with  the  Standard  was  to  remain  an  absolute  secret — the  con- 
cerns operating  under  their  respective  names.* 

On  October  15,  1874,  Mr.  Rockefeller  consummated  an- 
other purchase  of  as  great  importance.  He  bought  the  works 
of  Charles  Pratt  and  Company,  of  New  York  city.  As  before, 
the  purchase  was  secret.  The  strategic  importance  of  these 
purchases  for  one  holding  Mr.  Rockefeller's  vast  ambition 
was  enormous.  It  gave  him  as  allies  men  who  were  among 
the  most  successful  refiners,  without  doubt,  in  each  of  the 
three  greatest  refining  centres  of  the  country  outside  of  Cleve- 
land, where  he  ruled,  and  of  the  creek,  where  he  had  learned 
that  neither  he  nor  any  member  of  the  South  Improvement 
Company  could  do  business  with  facility.  To  meet  these  pur- 
chases the  stock  of  the  Standard  Oil  Company  was  increased, 
on  March  10,  1875,  to  $3, 500,000.  t  The  value  of  the  concern 
as  a  money-earner  at  this  early  date,  1874,  is  shown  by  the  fact 
that  Pratt  and  Company  paid  not  less  than  265  for  the  Standard 
stock  they  received  in  exchange  for  their  works.t 

The  first  intimation  that  the  Oil  Region  had  that  Mr. 
Rockefeller  was  pushing  another  combination  was  in  March 
of  1875,  when  it  was  announced  that  an  organisation  of  refin- 
ers, called  the  Central  Association,  of  which  he  was  president, 
had  been  formed.  Its  main  points  were  that  if  a  refiner  would 
lease  to  the  association  his  plant  for  a  term  of  months  he  would 

*  This  account  of  the  meeting  at  Saratoga  was  given  to  the  writer  by  Charles 
Lockhart,  of  Pittsburg. 

t  See  Appendix,  Number  24.  Standard  Oil  Company's  application  for  increase  of 
capital  stock  to  $3,500,000  in  1875. 

t  See  Appendix,  Number  25.  Henry  M.  Flagler's  testimony  on  the  union  of  the 
Standard  Oil  Company  with  outside  refiners  in  1874. 

[148] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

be  allowed  to  subscribe  for  stock  of  the  new  company.  The 
lease  allowed  the  owner  to  do  his  own  manufacturing,  but 
gave  Mr.  Rockefeller's  company  "irrevocable  authority"  to 
make  all  purchases  of  crude  oil  and  sales  of  refined,  to  decide 
how  much  each  refinery  should  manufacture,  and  to  negotiate 
for  all  freight  and  pipe-line  expenses.  The  Central  Associ- 
ation was  a  most  clever  device.  It  furnished  the  secret  partners^ 
of  Mr.  Rockefeller  a  plausible  proposition  with  which  to 
approach  the  firms  of  which  they  wished  to  obtain  control. 

Little  as  the  Oil  Regions  knew  of  the  real  meaning  of  the 
Central  Association,  the  news  of  its  organisation  raised  a  cry 
of  monopoly,  and  the  advocates  of  the  new  scheme  felt  called 
upon  to  defend  it.  The  defense  took  the  line  that  the  condi- 
tions of  the  trade  made  such  a  combination  of  refineries 
necessary.    Altogether   the    ablest   explanation   was    that   of 

IHL  H.  Rogers,  of  Charles  Pratt  and  Company,  to  a  reporter^ 
>f  the  New  York  Tribune : 
"There  are  five  refining  points  in  the  country,"  said  Mr.  Rogers,  "  Pittsburg,  Phila- 
elphia,  Cleveland,  the  Oil  Regions  and  New  York  city.  Each  of  these  has  certain 
local  advantages  which  may  be  briefly  stated  as  follows:  Pittsburg,  cheap  oil;  Phila- 
delphia, the  seaboard;  Cleveland,  cheap  barrels,  and  canal  as  well  as  railroad  trans- 
portation; the  Oil  Regions,  crude  oil  at  the  lowest  figure;  and  all  the  products  of 
petroleum  have  the  best  market  in  New  York  city.  The  supply  of  oil  is  three  or  four 
times  greater  than  the  demand.*  If  the  oil  refineries  were  run  to  their  full  capacity,  ^ 
the  market  would  be  overstocked.  The  business  is  not  regular,  but  spasmodic.  When 
the  market  is  brisk  and  oil  is  in  demand,  all  the  oil  interests  are  busy  and  enjoy  a  fair 
share  of  prosperity.  At  other  times,  the  whole  trade  is  affected  by  the  dullness.  It  has 
been  estimated  that  not  less  than  twenty  millions  of  dollars  are  invested  in  the  oil 
business.  It  is  therefore  to  the  interest  of  every  man  who  has  put  a  dollar  in  it  to  have 
the  trade  protected  and  established  on  a  permanent  footing.  Speculators  have  ruined 
the  market.  The  brokers  heretofore  have  been  speculating  upon  the  market  with 
disastrous  effects  upon  the  trade,  and  this  new  order  of  things  will  force  them  to  pursue 

J  *  Mr.  Rogers  is  mistaken  here.  The  production  in  1874  was  10,926,945  barrels, 

the  shipments  8,821,500,  the  stocks  at  the  end  of  the  year  3,705,639.  In  1875,  the 
year  in  which  he  is  speaking,  more  oil  was  consumed  than  produced. 

[  149] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

their  legitimate  calling,  and  realise  their  profits  from  their  industry  and  perseverance. 
Two  years  ago  an  attempt  was  made  to  organise  an  oil  refiners*  association,  but  it 
was  subsequently  abandoned.  There  was  no  cohesion  of  interests,  and  agreements  were 
not  kept.  The  movement  at  the  present  time  is  a  revival  of  the  former  idea,  and,  it 
is  believed,  has  already  secured  fully  nine-tenths  of  the  oil  refiners  in  the  country 
in  its  favour.  I  do  not  believe  there  is  any  intention  among  the  oil  men  to  'bull'  the 
market:  The  endeavour  is  to  equalise  all  around  and  protect  the  capital  invested. 
If  by  common  consent,  in  good  faith,  the  refiners  agree  to  reduce  the  quantities  to  an 
allotment  for  each,  made  in  view  of  the  supply  and  demand,  and  the  capacity  for 
production,  the  market  can  be  regulated  with  a  reasonable  profit  for  all.  The  price 
of  oil  to-day  is  fifteen  cents  per  gallon.  The  proposed  allotment  of  business  would 
probably  advance  the  price  to  twenty  cents.  To  make  an  artificial  increase,  with  im- 
mense profits,  would  be  recognised  as  speculative  instead  of  legitimate,  and  the  oil 
interests  would  suffer  accordingly.  Temporary  capital  would  compete  with  permanent 
investment  and  ruin  everything.  The  oil  producers  to-day  are  bankrupt.  There  have 
been  more  failures  during  the  last  five  months  than  in  five  years  previously.  An  organi- 
sation to  protect  the  oil  capital  is  imperatively  needed.  Oil  to  yield  a  fair  profit  should 
be  sold  for  twenty-five  cents  per  gallon.  That  price  would  protect  every  interest  and 
cover  every  outlay  for  getting  out  the  crude  petroleum,  transporting  by  railroad,  refining 
and  the  incidental  charges  of  handling,  etc.  The  foreign  markets  will  regulate  the 
price  to  a  great  extent,  because  they  are  the  greatest  consumers.  The  people  of  China, 
Germany,  and  other  foreign  countries  cannot  afford  to  pay  high  prices.  Kerosene  oil 
is  a  luxury  to  them,  and  they  do  not  receive  sufficient  compensation  for  their  labour 
to  enable  them  to  use  this  oil  at  an  extravagant  price.  The  price,  therefore,  must  be 
kept  within  reasonable  limits." 

The  Oil  Regions  refused  flatly  to  accept  this  view  of  the 
situation.  The  world  would  not  buy  refined  at  twenty-five 
cents,  they  argued.  "You  injured  the  foreign  market  in  1872 
by  putting  up  the  price.  Our  only  hope  is  in  increasing  con- 
sumption. The  world  is  buying  more  oil  to-day  than  ever 
before,  because  it  is  cheap.  We  must  learn  to  accept  small 
profits,  as  other  industries  do."  "The  formation  of  the  Refiners' 
Association  has  thrust  upon  the  trade  an  element  of  uncer- 
tainty that  has  unsettled  all  sound  views  as  to  the  general  out- 
look," said  the  Derrick.  "The  scope  of  the  Association," 
wrote  a  Pittsburg  critic,  "is  an  attempt  to  control  the  refining 
of  oil,  with  the  ultimate  purpose  of  advancing  its  price  and 

[150] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

reaping  a  rich  harvest  in  profits.  This  can  only  be  done  by 
reducing  the  production  of  refined  oil,  and  this  will  in  turn 
act  on  crude  oil,  making  the  stock  so  far  in  excess  of  the 
demand  as  to  send  it  down  to  a  lower  figure  than  it  has  yet 
touched."  /     ' 

"The  most  important  feature  of  this  contract,"  said  a  "vet- 
eran refiner,"  "is  perhaps  that  part  which  provides  that  the 
Executive  Committee  of  the  Central  Association  are  to  have 
the  exclusive  power  to  arrange  with  the  railroads  for  the 
carrying  of  the  crude  and  refined  oil.  It  is  intended  by  this 
provision  to  enable  the  Executive  Committee  to  speak  for  the 
whole  trade  in  securing  special  rates  of  freight,  whereby  inde- 
pendent shippers  of  crude  oil,  and  such  refiners  as  refuse  to 
join  the  combination,  and  any  new  refining  interest  that  may 
be  started,  may  be  driven  out  of  the  trade.  The  whole  general 
purpose  of  the  combination  is  to  reap  a  large  margin  by 
depressing  crude  and  raising  the  price  of  refined  oil,  and 
the  chief  means  employed  is  the  system  of  discrimination  in 
railroad  freights  to  the  seaboard." 

"The  veteran  refiner"  was  right  in  his  supposition  that  Mr. 
Rockefeller  intended  to  use  the  enormous  power  his  combina- 
tion gave  him  to  get  a  special  rate.  As  a  matter  of  fact  he  had 
seen  to  that  before  the  "veteran  refiner"  expressed  his  mind. 
It  will  be  remembered  that  in  April,  1874,  Mr.  Rockefeller 
had  made  a  contract  with  the  Erie  by  which  he  was  to  ship 
fifty  per  cent,  of  his  refined  oil  over  that  road  at  a  rate  as  low 
as  any  competing  line  gave  any  shipper  and  he  was  to  have  a 
lease  of  the  Weehawken  oil  terminal.  Now  this  contract 
remained  in  force  until  the  first  of  March,  1875,  when  a  new 
one  was  made  with  the  Erie  guaranteeing  the  road  the  same 
percentage  of  freight  and  giving  the  Standard  a  ten-per-cent. 
rebate  on  whatever  open  tariff  should  be  fixed.  This  rebate 
Mr.  Blanchard  says  was  quite  independent  of  what  the  Cen- 
tral might  be  giving  the  Standard.  He  says  that  one  reason  the" 

[151] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Standard  was  given  the  rebate  was  that  it  was  suspected  the 
Pennsylvania  was  allowing  the  Empire  Transportation  Com- 
pany an  even  larger  one.  If  true,  this  would  not  affect  any 
refiner  necessarily  as  the  Empire  was  not  a  refiner  in  March, 
1875.  The  real  reason,  of  course,  was  what  Mr.  Blanchard 
gives  later — that  by  this  rebate  they  kept  the  Standard  trade, 
now  greatly  increased  by  the  purchase  of  the  outside  works 
already  mentioned,  although  it  should  be  noticed  the  Erie 
officials  knew  nothing  of  the  Standard  having  control  of  any 
other  refinery  than  that  of  Charles  Pratt  and  Company. 
The  announcement  of  the  Central  Association  put  an  alto- 
gether new  feature  on  oil  transportation.  If  this  organisation 
succeeded,  and  the  refiners  in  it  claimed  nine-tenths  of  the 
capacity  of  the  country — it  gave  Mr.  Rockefeller  "irrevoca- 
ble authority"  to  negotiate  freights.  The  Pennsylvania  road 
^immediately  felt  the  pressure.  The  oil  they  had  carried  for 
big  firms  like  those  of  Charles  Lockhart  in  Pittsburg  and 
of  Warden,  Frew  and  Company  in  Philadelphia  was  in  the 
hands  of  the  Standard  Oil  Company,  and  Mr.  Rockefeller 
asked  a  rebate  of  ten  per  cent,  on  open  rates.  The  road  de- 
murred. Colonel  Potts  objected  strenuously.  Three  years 
later  in  a  paper  discussing  this  rebate  and  its  consequences 
he  said: 

"The  rebate  was  a  modest  one,  as  was  its  recipient.  Yet  the  railway  Cassandras 
prophesied  from  it  a  multitude  of  evils — a  gradual  destruction  of  all  other  refiners 
and  a  gradual  absorption  of  their  property  by  the  favourite,  who,  with  this  additional 
armament,  would  rapidly  progress  towards  a  control  of  all  cars,  all  pipes,  all  pro- 
duction, and  finally  of  the  roads  themselves.  Their  prophecies  met  but  little  faith 
or  consideration.  The  Standard  leaders  themselves  were  especially  active  in  discourag- 
ing any  such  radical  purpose.  Their  little  rebate  was  enough  for  them.  Everybody 
else  should  prosper,  as  would  be  shortly  seen.  They  needed  no  more  refineries;  they 
had  already  more  than  they  could  employ — why  should  they  hunger  after  greater 
burdens  ?  It  was  the  railroads  they  chiefly  cared  for,  and  next  in  their  affections  stood 
the  100  rival  refineries.  Such  beneficent  longings  as  still  remained  (and  their  bosoms 
overflowed  with  them)  spread  out  their  steady  waves  toward  the  poor  producers 

[152] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

whom,  not  to  be  impious,  they  had  always  been  ready  to  gather  under  their  wings, 
yet  they  would  not. 

"This  unselfish  language  soothed  all  alarm  into  quiet  slumbering.  It  resembles 
the  gentle  fanning  of  the  vampire's  wings,  and  it  had  the  same  end  in  view — the  un- 
disturbed abstraction  of  the  victim's  blood." 

Colonel  Potts's  argument  against  the  rebate — doubtless 
clothed  in  much  less  picturesque  language  in  1875  than  his 
feelings  stirred  him  to  in  1878,  for  a  good  enough  reason,  too, 
as  we  shall  see — failed  to  convince  the  Pennsylvania  officials. 
They  decided  to  yield  to  the  Standard.  Mr.  Cassatt,  then  third 
vice-president  of  the  road,  in  charge  of  transportation,  said 
in  1879  that  the  rebate  was  given  because  they  found  the 
Standard  was  getting  very  strong,  that  they  had  the  backing 
of  the  other  roads,  and  that  if  the  Pennsylvania  wanted  to 
retain  its  full  share  of  business  and  at  fair  rates  they  must 
make  arrangements  to  protect  themselves. 

No  one  of  the  roads  knew  certainly  what  the  others  were 
doing  for  the  Standard  until  October  1,  1875.  The  freight 
agents  then  met  to  discuss  again  the  freight  pool  they  had 
formed  in  1874.  I*  nac*  not  been  working  with  perfect  satisfac- 
tion. The  clause  granting  the  rebate  of  twenty-two  cents  to 
the  pipe-lines  which  sustained  an  agreed  rate  of  pipage  had 
been  abandoned  after  about  five  months'  experiment.  It  was 
thought  to  stimulate  new  pipes.  The  roads  in  making  a  new 
adjustment  made  no  effort  to  regulate  pipe-line  tariffs.  The 
"crude  rebate"  as  it  was  called — carrying  oil  to  a  refinery^ 
for  nothing — was  left  in  force.  At  this  meeting  Mr.  Blan- 
chard  found  that  both  of  the  Erie's  big  rivals  were  grant- 
ing the  Standard  a  ten  per  cent,  rebate.  He  also  found  that 
he  was  not  getting  fifty  per  cent,  of  the  Standard's  business  as 
the  contract  called  for — that  the  Standard  controlled  not  only 
the  Cleveland  and  New  York  works  of  which  he  knew,  but 
large  works  in  Pittsburg  and  Philadelphia.*  r 

*  See  Appendix,  Number  26.    George  R.  Blanchard's  testimony  on  the  breaking 
up  of  the  Pipe  Pool  of  1874. 

[153] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Mr.  Rockefeller  was  certainly  now  in  an  excellent  condition 
to  work  out  his  plan  of  bringing  under  his  own  control  all  the 
refineries  of  the  country.  The  Standard  Oil  Company  owned 
in  each  of  the  great  refining  centres,  New  York,  Pittsburg  and 
Philadelphia,  a  large  and  aggressive  plant  run  by  the  men 
who  had  built  it  up.  These  works  were,  so  far  as  the  public 
knew,  still  independent  and  their  only  relation  that  of  the 
"Central  Association."  As  a  matter  of  fact  they  were  the 
"Central  Association."  Not  only  had  Mr.  Rockefeller  brought 
these  powerful  interests  into  his  concern;  he  had  secured  for 
them  a  rebate  of  ten  per  cent,  on  a  rate  which  should  always 
be  as  low  as  any  one  of  the  roads  gave  any  of  his  competitors. 
He  had  done  away  with  middlemen,  that  is,  he  was  "paying 
nobody  a  profit."  He  had  undeniably  a  force  wonderfully 
constructed  for  what  he  wanted  to  do  and  one  made  practi- 
cally impregnable  as  things  were  in  the  oil  business  then,  by 
virtue  of  its  special  transportation  rate. 

As  soon  as  his  new  line  was  complete  the  work  of  acquiring 
all  outside  refineries  began  at  each  of  the  oil  centres.  Unques- 
tionably the  acquisitions  were  made  through  persuasion  when 

(this  was  possible.  If  the  party  approached  refused  to  lease  or 

sell,  he  was  told  firmly  what  Mr.  Rockefeller  had  told  the 
Cleveland  refiners  when  he  went  to  them  in  1872  with  the 
South  Improvement  contracts,  that  there  was  no  hope  for 
him;  that  a  combination  was  in  progress  which  was  bound  to 
work;  and  that  those  who  stayed  out  would  inevitably  go  to 

-the  wall.  Naturally  the  first  fruits  to  fall  into  the  hands  of  the 
new  alliance  were  those  refineries  which  were  embarrassed 
or  discouraged  by  the  conditions  which  Mr.  Rogers  explains 
above.  Take  as  an  example  the  case  of  the  Citizens'  Oil  Refin- 
ing Company  of  Pittsburg,  as  it  was  explained  in  1888  to  the 
House  Committee  on  Manufactures  in  its  trust  investigation. 
A.  H.  Tack,  a  partner  in  the  company,  told  the  story:* 

*  Condensed  from  Mr.  Tack's  testimony. 

[154] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

"We  began  in  1869  with  a  capacity  of  1,000  barrels  a  day.  At  the  start  everything 
was  couleur  de  rose,  so  much  so  that  we  put  our  works  in  splendid  shape.  We  manufac- 
tured all  the  products.  We  even  got  it  down  to  making  wax,  and  using  the  very  last 
residuum  in  the  boilers.  We  got  the  works  in  magnificent  order  and  used  up  everything. 
We  began  to  feel  the  squeeze  in  1872.  We  did  not  know  what  was  the  matter.  Of  course 
we  were  all  affected  the  same  way  in  Pennsylvania,  and  of  course  we  commenced 
shifting  about,  and  meeting  together,  and  forming  delegations,  and  going  down  to 
Philadelphia  to  see  the  Pennsylvania  Railroad,  meeting  after  meeting  and  delegation 
after  delegation.  We  suspected  there  was  something  wrong,  and  told  those  men  there 
was  something  wrong  somewhere;  that  we  felt,  so  far  as  position  was  concerned,  we  had 
the  cheapest  barrels,  the  cheapest  labour,  and  the  cheapest  coal,  and  the  route  from 
the  crude  district  was  altogether  in  our  favour.  We  had  a  railroad  and  a  river  to  bring 
us  our  raw  material.  We  had  made  our  investment  based  on  the  seaboard  routes,  and 
we  wanted  the  Pennsylvania  Railroad  to  protect  us.  But  none  of  our  meetings  or 
delegations  ever  amounted  to  anything.  They  were  always  repulsed  in  some  way,  put 
off,  and  we  never  got  any  satisfaction.  The  consequence  was  that  in  two  or  three  years 
there  was  no  margin  or  profit.  In  order  to  overcome  that  we  commenced  speculating, 
in  the  hope  that  there  would  be  a  change  some  time  or  other  for  the  better.  We  did 
not  like  the  idea  of  giving  up  the  ship.  Now,  during  these  times  the  Standard  Oil 
Company  increased  so  perceptibly  and  so  strong  that  we  at  once  recognised  it  as  the 
element.  Instead  of  looking  to  the  railroad  I  always  looked  to  the  Standard  Oil  Com- 
pany. In  1874  I  went  to  see  Rockefeller  to  find  if  we  could  make  arrangements  with 
him  by  which  we  could  run  a  portion  of  our  works.  It  was  a  very  brief  interview.  He 
said  there  was  no  hope  for  us  at  all.  He  remarked  this — I  cannot  give  the  exact  quotation 
— 'There  is  no  hope  for  us/  and  probably  he  said,  'There  is  no  hope  for  any  of  us'; 
but  he  says,  'The  weakest  must  go  first.'  And  we  went.'* 

All  over  the  country  the  refineries  in  the  same  condition  as 
Mr.  Tack's  firm  sold  or  leased.  Those  who  felt  the  hard  times 
and  had  any  hope  of  weathering  them  resisted  at  first.  With 
many  of  them  the  resistance  was  due  simply  to  their  love  for 
their  business  and  their  unwillingness  to  share  its  control  with 
outsiders.  The  thing  which  a  man  has  begun,  cared  for,  led 
to  a  healthy  life,  from  which  he  has  begun  to  gather  fruit, 
which  he  knows  he  can  make  greater  and  richer,  he  loves  as 
he  does  his  life.  It  is  one  of  the  fruits  of  his  life.  He  is  jealous 
of  it — wishes  the  honour  of  it,  will  not  divide  it  with  another. 
He  can  suffer  heavily  his  own  mistakes,  learn  from  them,  cor- 

[155] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
rect  them.  He  can  fight  opposition,  bear  all — so  long  as  the 
work  is  his.  There  were  refiners  in  1875  who  loved  their  busi- 
ness in  this  way.  Why  one  should  love  an  oil  refinery  the 
outsider  may  not  see ;  but  to  the  man  who  had  begun  with 
one  still  and  had  seen  it  grow  by  his  own  energy  and  intelli- 
gence to  ten,  who  now  sold  500  barrels  a  day  where  he  once 
sold  five,  the  refinery  was  the  dearest  spot  on  earth  save  his 
home.  He  walked  with  pride  among  its  evil-smelling  places, 
watched  the  processes  with  eagerness,  experimented  with  joy 
and  recounted  triumphantly  every  improvement.  To  ask  such 
a  man  to  give  up  his  refinery  was  to  ask  him  to  give  up  the 
_.  thing  which,  after  his  family,  meant  most  in  life  to  him. 
To  Mr.  Rockefeller  this  feeling  was  a  weak  sentiment.  To 
place  love  of  independent  work  above  love  of  profits  was  as 
incomprehensible  to  him  as  a  refusal  to  accept  a  rebate  because 
it  was  wrong!  Where  persuasion  failed  then,  it  was  necessary, 
in  his  judgment,  that  pressure  be  applied — simply  a  pressure 
sufficient  to  demonstrate  to  these  blind  or  recalcitrant  individ- 
uals the  impossibility  of  their  long  being  able  to  do  business 
independently.  It  was  a  pressure  varied  according  to  locality. 
Usually  it  took  the  form  of  cutting  their  market.  The  system 
of  "predatory  competition"  was  no  invention  of  the  Standard 
Oil  Company.  It  had  prevailed  in  the  oil  business  from  the  \ 
start.  Indeed,  it  was  one  of  the  evils  Mr.  Rockefeller  claimed 
his  combination  would  cure,  but  until  now  it  had  been  used 
spasmodically.  Mr.  Rockefeller  never  did  anything  spasmod- 
ically. He  applied  underselling  for  destroying  his  rivals'  mar- 
ket with  the  same  deliberation  and  persistency  that  character- 
ised all  his  efforts-,  and  in  the  long  run  he  always  won.  There 
were  other  forms  of  pressure.  Sometimes  the  independents 
found  it  impossible  to  get  oil;  again,  they  were  obliged  to 
wait  days  for  cars  to  ship  in;  there  seemed  to  be  no  end  to  the 
ways  of  making  it  hard  for  men  to  do  business,  of  discourag- 
ing therjn  until  they  would  sell  or  lease,  and  always  at  the 

[156] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

psychological  moment  a  purchaser  was  at  their  side.  Take  as 
an  example  the  case  of  the  Harkness  refinery  in  Philadelphia, 
a  story  told  to  the  same  committee  as  that  of  Mr.  Tack: 

"I  was  the  originator  of  the  enterprise,"  said  William  W.  Harkness,  "believing 
that  there  was  no  better  place  than  Philadelphia  to  refine  oil,  particularly  for  export. 
We  commenced  then,  as  near  as  I  can  now  recollect,  about  1870,  and  we  made  money 
up  to  probably  1874.  We  managed  our  business  very  close  and  did  not  speculate  in 
oil.  We  bought  and  we  sold,  and  we  paid  a  great  deal  of  attention  to  the  statistical 
part  of  our  business  so  as  to  save  waste,  and  we  did  a  nice  business.  But  we  found 
in  some  years  that  probably  five  months  out  of  a  year  we  could  not  sell  our  oil  unless 
it  would  be  at  a  positive  loss,  and  then  we  stopped.  Then  when  we  could  sell  our  oil, 
we  found  a  difficulty  about  getting  cars.  My  brother  would  complain  of  it,  but  I 
believed  that  the  time  would  come  when  that  wcluld  be  equalised.  I  had  no  idea  of 
the  iniquity  that  was  going  on;  I  could  not  conceive  it.  I  went  on  in  good  faith  until 
*■)  about  1874,  and  then  the  trouble  commenced.  We  could  not  get  our  oil  and  were 
compelled  to  sell  at  a  loss.  Then  Warden,  Frew  and  Company  formed  some  kind  of 
running  arrangement  where  they  supplied  the  crude,  and  we  seemed  to  get'  along 
a  little  better.  After  a  while  the  business  got  complicated,  and  I  got  tired  and  handed 
it  over  to  my  brother;  I  backed  out.  That  was  about  1875.  I  was  dissatisfied  and  wanted 
to  do  an  independent  business,  or  else  I  wanted  to  give  it  up.  In  1876 — I  recollect 
that  very  well,  because  it  was  the  year  of  the  Centennial  Exposition — we  were  at  the 
Centennial  Exposition.  I  was  sitting  in  front  of  the  great  Corliss  engine,  admiring 
it,  and  he  told  me  there  was  a  good  opportunity  to  get  out.  Warden,  Frew  and  Com- 
pany, he  said,  were  prepared  to  buy  us  out,  and  I  asked  him  whether  he  considered  that 
as  the  best  thing  to  do;  whether  we  had  riot  better  hold  on  and  fight  it  through,  for 
I  believed  that  these  difficulties  would  not  continue;  that  we  would  get  our  oil.  I 
knew  he  was  a  competent  refiner,  and  I  wanted  to  continue  business,  but  he  said  he 
thought  he  had  better  make  this  arrangement,  and  I  consented,  and  we  sold  out; 
we  got  our  investment  back."  * 

Here  we  have  a  refiner  discouraged  by  the  conditions  which  * 
Mr.  Rockefeller  claims  his  aggregation  will  cure.  Under  the 
Rutter  circular  and  the  discrimination  in  freight  to  the  Stand- 
ard which  followed,  his  difficulty  in  getting  oil  increases,  and  ' 
he  consents  to  a  running  arrangement  with  Mr.  Rockefeller's 
partner  in  Philadelphia,  but  he  wants  to  do  an  "independent 

*  Condensed  from  Mr.  Harkness's  testimony. 

[157]  > 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

business."  Impossible.  As  he  sits  watching  the  smooth  and 
terrible  power  of  that  famous  Corliss  engine  of  1876,  an 
engine  which  showed  to  thousands  for  the  first  time  what 
great  power  properly  directed  means,  he  realised  that  some- 
thing very  like  it  was  at  work  in  the  oil  business — something 
resistless,  silent,  perfect  in  its  might — and  he  sold  out  to  that 
something.  Everywhere  men  did  the  same.  The  history  of  oil 
refining  on  Oil  Creek  from  1875  to  1879  is  almost  uncanny. 
There  were  at  the  beginning  of  that  period  twenty-seven  plants 
in  the  region,  most  of  which  were  in  a  fair  condition,  con- 
sidering the  difficulties  in  the  business.  During  1873  the  de- 
mand for  refined  oil  had  greatly  increased,  the  exports  nearly 
doubling  over  those  of  1872.  The  average  profit  on  refined 
that  year  in  a  well-managed  refinery  was  not  less  than  three 
cents  a  gallon.  During  the  first  half  of  1874  the  oil  business 
had  been  depressed,  but  the  oil  refiners  were  looking  for  bet- 
ter times  when  the  Rutter  circular  completely  demoralised 
them  by  putting  fifty  cents  extra  freight  charges  on  their 
shipments  without  an  equivalent  raise  on  competitive  points. 
It  was  not  only  this  extra  charge,  enough  to  cut  off  their 
profits,  as  business  then  stood,  but  it  was  that  the  same  set 
of  men  who  had  thrown  their  business  into  confusion  in 
1872  was  again  at  work.  The  announcement  of  the  Central 
Association  with  Mr.  Rockefeller's  name  at  its  head  confirmed 
their  tears.  Nevertheless  at  first  none  of  the  small  refiners 
would  listen  to  the  proposition  to  sell  or  lease  made  them 
in  the  spring  of  1875  by  the  representative  first  sent  out  by  the 
Central  Association.  They  would  have  nothing  to  do,  they 
said  bluntly,  with  any  combination  engineered  by  John  D. 
Rockefeller.  The  representative  withdrew  and  the  case  was 
considered.  In  the  mean  time  conditions  on  the  creek  grew 
harder.  All  sorts  of  difficulties  began  to  be  strewn  in  their 
way — cars  were  hard  to  get,  the  markets  they  had  built  up 
were  cut  under  them — a  demoralising  conviction  was  abroad 

[158] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

in  the  trade  that  this  new  and  mysterious  combination  was 
going  to  succeed;  that  it  was  doing  rapidly  what  its  mem- 
bers were  reported  to  be  saying  daily:  "We  mean  to  secure 
the  entire  refining  business  of  the  world."  Such  was  the  state 
of  things  on  the  creek  when  in  the  early  fall  of  1875  an 
energetic  young  refiner  and  oil  buyer  well  known  in  the  Oil 
Regions,  J.  D.  Archbold,  appeared  in  Titusville  as  the 
representative  of  a  new  company,  the  Acme  Oil  Company, 
a  concern  which  everybody  believed  to  be  an  offshoot  of  the 
Standard  Oil  Company  of  Cleveland,  though  nobody  could 
prove  it.  As  a  matter  of  fact  the  Acme  was  capitalised  and 
controlled  entirely  by  Standard  men,  its  stockholders  being, 
in  addition  to  Mr.  Archbold,  William  Rockefeller,  William 
G.  Warden,  Frank  Q.  Barstow,  and  Charles  Pratt.  It  wa? 
evident  at  once  that  the  Acme  Oil  Company  had  come  into 
the  Oil  Regions  for  the  purpose  of  absorbing  the  independent 
interests  as  Mr.  Rockefeller  and  his  colleagues  were  absorb- 
ing them  elsewhere.  The  work  was  done  with  a  promptness" 
and  despatch  which  do  great  credit  to  the  energy  and 
resourcefulness  of  the  engineer  of  the  enterprise.  In  three 
years,  by  1878,  all  but  two  of  the  refineries  of  Titusville  had 
"retired  from  the  business  gloriously,"  as  Mr.  Archbold, 
flushed  with  victory,  told  the  counsel  of  the  Commonwealth 
of  Pennsylvania  in  1879,  when  the  state  authorities  were  try- 
ing to  find  what  was  at  work  in  the  oil  interests  to  cause  such 
a  general  collapse.  Most  of  the  concerns  were  bought  out- 
right, the  owners  being  convinced  that  it  was  impossible  for 
them  to  do  an  independent  business,  and  being  unwilling  to 
try  combination.  All  down  the  creek  the  little  refineries  which 
for  years  had  faced  every  difficulty  with  stout  hearts  col- 
lapsed. "Sold  out,"  "dismantled,"  "shut  down,"  is  the  melan- 
choly record  of  the  industry  during  these  four  years.  At  the 
end  practically  nothing  was  left  in  the  Oil  Regions  but  the 
Acme  of  Titusville  and  the  Imperial  of  Oil  City,  both  of 

[159] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

them  now  under  Standard  management.  To  the  oil  men  this 
sudden  wiping  out  of  the  score  of  plants  with  which  they 
had  been  familiar  for  years  seemed  a  crime  which  nothing 
could  justify.  Their  bitterness  of  heart  was  only  intensified 
by  the  sight  of  the  idle  refiners  thrown  out  of  business  by 
the  sale  of  their  factories.  These  men  had,  many  of  them, 
handsome  sums  to  invest,  but  what  were  they  to  put  them  in? 
They  were  refiners,  and  they  carried  a  pledge  in  their  pockets 
not  to  go  into  that  business  for  a  period  of  ten  years.  Some 
of  them  tried  the  discouraged  oil  man's  fatal  resource,  the 
market,  and  as  a  rule  left  their  money  there.  One  refiner  who 
had,  according  to  popular  report,  received  $200,000  for  his 
business,  speculated  the  entire  sum  away  in  less  than  a  year. 
Others  tried  new  enterprises,  but  men  of  forty  learn  new 
trades  with  difficulty,  and  failure  followed  many  of  them. 
The  scars  left  in  the  Oil  Regions  by  the  Standard  Combination 
of  1 875-1 879  are  too  deep  and  ugly  for  men  and  women  of 
this  generation  to  forget  them. 

In  Pittsburg  the  same  thing  was  happening.  At  the  begin- 
ning of  the  work  of  absorption — 1874 — there  were  between 
twenty- two  and  thirty  refineries  in  the  town.*  As  we  have 
seen,  Lockhart  and  Frew  sold  to  the  Standard  Oil  Company 
of  Cleveland  some  time  in  1874.  In  the  fall  of  that  year  a 
new  company  was  formed  in  Pittsburg,  called  the  Standard 
Oil  Company  of  Pittsburg.  Its  president  was  Charles  Lock- 
hart;  its  directors  William  Frew,  David  Bushnell,  H.  M. 
Flagler,  and  W.  G.  Warden — all  members  of  the  Standard 
Oil  Company  and  four  of  them  stockholders  in  the  South  Im- 
provement Company.  This  company  at  once  began  to  lease  or 
buy  refineries.  Many  of  the  Pittsburg  refiners  made  a  valiant 
fight  to  get  rates  on  their  oil  which  would  enable  them  to  run 

*  J.  T.  Henry,  in  his  "Early  and  Later  History  of  Petroleum,"  gives  twenty-two; 
E.  G.  Patterson,  in  a  list  presented  in  court  in  1880,  gives  the  number  at  the 
beginning  of  this  combination  as  thirty. 

[160] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

independently.  To  save  expense  they  tried  to  bring  oil  from 
the  oil  fields  by  barge;  the  pipe-lines  in  the  pool  refused  to 
run  oil  to  barges,  the  railroad  to  accept  oil  brought  down  by 
barge.  An  independent  pipe-line  attempted  to  bring  it  to"~ 
Pittsburg,  but  to  reach  the  works  the  pipe-line  must  run  under 
a  branch  of  the  Pennsylvania  railroad.  It  refused  to  permit 
this,  and  for  months  the  oil  from  the  line  was  hauled  in  wagons 
from  the  point  where  it  had  been  held  up,  over  the  railroad 
track,  and  there  repiped  and  carried  to  Pittsburg.  At  every" 
point  they  met  interference  until  finally  one  by  one  they 
gave  in.  According  to  Mr.  Frew,  who  in  1879  was  examined 
as  to  the  condition  of  things  in  Pittsburg,  the  company  began 
to  "acquire  refiners"  in  1875.  In  1877  they  bought  their  last 
one;  and  at  the  time  Mr.  Frew  was  under  examination  he 
could  not  remember  but  one  refinery  in  operation  in  Pitts- 
burg not  controlled  by  his  company. 

Nor  was  it  refiners  only  who  sold  out.  All  departments 
of  the  trade  began  to  yield  to  the  pressure.  There  was  in  the 
oil  business  a  class  of  men  known  as  shippers.  They  bought 
crude  oil,  sent  it  East,  and  sold  it  to  refineries  there.  Among 
the  largest  of  these  was  Adnah  Neyhart,  whose  active  repre-_ 
sentative  was  W.  T.  Scheide.  Now  to  Mr.  Rockefeller  the 
independent  shipper  was  an  incubus ;  he  did  a  business  which,  - 

(in  his  judgment,  a  firm  ought  to  do  for  itself,  and  reaped  a 
profit  which  might  go  direct  into  the  business.  Besides,  so 
long  as  there  were  shippers  to  supply  crude  to  the  Eastern 
refineries  at  living  prices,  so  long  these  concerns  might  resist 
offers  to  sell  or  lease. 

Some  time  in  the  fall  of  1872  Mr.  Scheide  began  to  lose 
his  customers  in  New  York.  He  found  that  they  were  making 

ime  kind  of  a  working  arrangement  with  the  Standard  Oil 
ompany,  just  what  he  did  not  know.  But  at  all  events  they 
)  longer  bought  from  him  but  from  the  Standard  buyer, 
A.  Bostwick  and  Company.  At  the  same  time  he  became  con-^ 
[161] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
vinced  that  Mr.  Rockefeller  was  after  his  business.  "I  knew 
that  they  were  making  some  strenuous  efforts  to  get  our  busi- 
ness," he  told  the  Hepburn  Commission  in  1879,  "because  I 
used  to  meet  Mr.  Rockefeller  in  the  Erie  office."  At  the  same 
time  that  he  was  facing  the  loss  of  customers  and  the  demoral- 
ising conviction  that  the  Standard  Oil  Company  wanted  his 
business,  he  was  experiencing  more  or  less  disgust  over  busi- 
ness conditions  in  New  York.  "I  did  not  like  the  character  of 
my  customers  there,"  Mr.  Scheide  told  the  committee.  "I  did 
not  think  they  were  treating  us  fairly  and  squarely.  There  was 
a  strong  competition  in  handling  oil.  The  competition  had 
got  to  be  so  strong  that  'outside  refiners,'  as  they  called  them- 
selves then,  used  to  go  around  bidding  up  the  price  of  their  | 
works  on  the  Standard  Oil  Company,  and  they  were  using 
me  to  sell  their  refineries  to  the  Standard.  They  would  say  I 
to  refiners:  'Neyhart  will  do  so  and  so,  and  we  are  going  to 
continue  running.'  And  they  would  say  to  us  that  the  Stand- 
ard was  offering  lower  prices.  I  recollect  one  instance  in  which  j 
they,  after  having  made  a  contract  to  buy  oil  from  me  if 
I  would  bring  it  over  the  Erie  Railway,  broke  that  con-  j 
tract  for  the  i-i28th  part  of  a  cent  a  gallon.  I  sold  out  the  j 
_jiext  week."  When  Mr.  Scheide  went  to  the  freight  agent  of 
the  Erie  road,  Mr.  Blanchard,  and  told  him  of  his  decision  to 
sell,  Mr.  Blanchard  tried  to  dissuade  him.  During  the  conver- 
sation he  let  out  a  fact  which  must  have  convinced  Mr. 
Scheide  more  fully  than  ever  that  he  had  been  wise  in  deter- 
mining to  give  up  his  business.  Mr.  Blanchard  told  him  as  a 
reason  for  his  staying  and  trusting  to  the  Erie  road  to  keep 
its  contracts  with  him  that  the  Standard  Oil  Company  had 
been  offering  him  five  cents  more  a  barrel  than  Mr.  Scheide 
was  paying  them,  and  would  take  all  their  cars,  and  load  them  | 
all  regularly  if  they  would  throw  him  over  and  give  them  ; 
—  the  business.  It  is  interesting  to  note  that  when  Mr.  Scheide 
sold  in  the  spring  of  1875,  lt  was>  as  ne  supposed,  to  Charles  i 

[162] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

Pratt  and  Company.  Well  informed  as  he  was  in  all  the  intri- 

^acies  of  the  business — and  there  were  few  abler  or  more 
nergetic  men  in  trade  at  the  time — he  did  not  know  that 
Charles  Pratt  and  Company  had  been  part  and  parcel  of  the 
Standard  Oil  Company  since  October,  1874. 

Of  course  securing  a  large  crude  shipping  business  like  Mr. 
Neyhart's  was  a  valuable  point  for  the  Standard.  It  threw  all 
of  the  refiners  whom  he  had  supplied  out  of  crude  oil  and 
forced  several  of  them  to  come  to  the  Standard  buyer — a  first 
step,  of  course,  toward  a  lease  or  sale.  At  every  point,  indeed, 
making  it  difficult  for  the  refiner  to  get  his  raw  product  was 
one  of  the  favourite  manoeuvres  of  the  combination.  It  was  not 
only  to  crude  oil  it  was  applied.  Factories  which  worked  up 
the  residuum  or  tar  into  lubricating  oil  and  depended  on 
Standard  plants  for  their  supply  were  cut  off.  There  was  one 
such  in  Cleveland — the  firm  of  Morehouse  and  Freeman.  Mr. 
Morehouse  had  begun  to  experiment  with  lubricating  oils  in 
1861,  and  in  1871  the  report  of  the  Cleveland  Board  of  Trade 
devoted  several  of  its  pages  to  a  description  of  his  business. 
According  to  this  account  he  was  then  making  oils  adapted 
to  lubricating  all  kinds  of  machinery — he  held  patents  for 
several  brands  and  trade  marks,  and  had  produced  that  year 
over  25,000  barrels  of  different  lubricants  besides  120,000 
boxes  of  axle  grease.  At  this  time  he  was  buying  his  stock  or 
residuum  from  one  or  another  of  the  twenty-five  Cleveland 
refiners.  Then  came  the  South  Improvement  Company  and 
the  concentration  of  the  town's  refining  interest  in  Mr.  Rocke- 
feller's hands.  Mr.  Morehouse,  according  to  the  testimony  he 
gave  the  Hepburn  Commission  in  1879,  went  to  Mr.  Rocke- 
eller,  after  the  consolidation,  to  arrange  for  supplies.  He  was 
elcomed — the  Standard  Oil  Company  had  not  at  that  time 
gun  to  deal  in  lubricating  oils — and  encouraged  to  build  a 
ew  plant.  This  was  done  at  a  cost  of  $41,000,  and  a  contract 
as  made  with  the  Standard  Oil  Company  for  a  daily  supply 

[  163  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

of  eighty-five  barrels  of  residuum.  Some  time  in  1874  this 
supply  was  cut  down  to  twelve  barrels.  The  price  was  put  up 
too,  and  contracts  for  several  months  were  demanded  so  that 
Mr.  Morehouse  got  no  advantage  from  the  variation  in  crude 
prices.  Then  the  freights  went  up  on  the  railroads.  He  paid 
$1.50  and  two  dollars  for  what  he  says  he  felt  sure  his  big 
neighbour  was  paying  but  seventy  or  seventy- five  cents  (there  is 
no  evidence  of  any  such  low  rate  to  the  Standard  from  Cleve- 
land to  New  York  by  rail).  Now  it  was  impossible  for  Mr. 
Morehouse  to  supply  his  trade  on  twelve  barrels  of  stock.  He 
begged  Mr.  Rockefeller  for  more.  It  was  there  in  the  Standard 
Oil  works.  Why  could  he  not  have  it?  He  could  pay  for  it.  He 
and  his  partner  offered  to  buy  5,000  barrels  and  store  it,  but 
Mr.  Rockefeller  was  firm.  All  he  could  give  Mr.  Morehouse 
was  twelve  barrels  a  day.  "I  saw  readily  what  that  meant," 
said  Mr.  Morehouse,  "that  meant  squeeze  you  out — buy  your 
works.  They  have  got  the  works  and  are  running  them;  I 
am  without  anything.  They  paid  about  $15,000  for  what  cost 
me  $41,000.  He  said  that  he  had  facilities  for  freighting  and 
that  the  coal-oil  business  belonged  to  them;  and  any  concern 
that  would  start  in  that  business,  they  had  sufficient  money  to 
lay  aside  a  fund  to  wipe  them  out — these  are  the  words."  * 

At  every  refining  centre  in  the  country  this  process  of  con- 
solidation through  persuasion,  intimidation,  or  force,  went  on. 
As  fast  as  a  refinery  was  brought  in  line  its  work  was  assigned 
to  it.  If  it  was  an  old  and  poorly  equipped  plant  it  was  usually 
dismantled  or  shut  down.  If  it  was  badly  placed,  that  is,  if  it 
was  not  economically  placed  in  regard  to  a  pipe-line  and  rail- 
road, it  was  dismantled  even  though  in  excellent  condition. 
If  it  was  a  large  and  well-equipped  plant  advantageously 
located  it  was  assigned  a  certain  quota  to  manufacture,  and  it 
did  nothing  but  manufacture.  The  buying  of  crude,  the  mak- 

*  Condensed  from  testimony  of  Mr.  Morehouse  before  the  special   committee  on 
railroads,  New  York  Assembly,  1879. 

[164] 


LAYING  THE  FOUNDATIONS  OF  A  TRUST 

ing  of  freight  rates,  the  selling  of  the  output  remained  with 
Mr.  Rockefeller.  The  contracts  under  which  all  the  refineries 
brought  into  line  were  run  were  of  the  most  detailed  and 
rigid  description,  and  they  were  executed  as  a  rule  with  a 
secrecy  which  baffles  description.  Take,  for  example,  a  run- 
ning arrangement  made  by  Rockefeller  in  1876,  with  a  Cleve- 
land refinery,  that  of  Scofield,  Shurmer  and  Teagle.  The  mem- 
bers of  this  concern  had  all  been  in  the  refining  business  in 
Cleveland  in  1872  and  had  all  handed  over  their  works  to 
Mr.  Rockefeller,  when  he  notified  them  of  the  South  Improve- 
ment Company's  contracts.  Mr.  Shurmer  declared  once  in  an 
affidavit  that  he  alone  lost  $20,000  by  that  manoeuvre.  The 
members  of  the  firm  had  not  stayed  out  of  business,  however. 
Recovering  from  the  panic  caused  by  the  South  Improvement 
Company,  they  had  united  in  1875,  building  a  refinery  worth 
$65,000,  with  a  yearly  capacity  of  180,000  barrels  of  crude. 
On  the  first  year's  business  they  made  $40,000.  Although 
this  was  doing  well,  they  were  convinced  they  might  do  better 
if  they  could  get  as  good  freight  rates  as  the  Standard  Oil 
Company,  and  in  the  spring  of  1876  they  brought  suit  against 
the  Lake  Shore  and  Michigan  Southern  and  the  New  York 
Central  and  Hudson  River  Railroads  for  "unlawful  and  unjust 
discrimination,  partialities  and  preferences  made  and  prac- 
tised ...  in  favour  of  the  Standard  Oil  Company,  enabling 
the  said  Standard  Oil  Company  to  obtain  to  a  great  extent 
the  monopoly  of  the  oil  and  naphtha  trade  of  Cleveland." 
The  suit  was  not  carried  through  at  the  time.  Mr.  Rockefeller 
seems  to  have  suggested  a  surer  way  to  the  firm  of  getting  the 
rates  they  wanted.  This  was  to  make  a  running  arrangement 
with  him.  He  seems  to  have  demonstrated  to  them  that  they 
could  make  more  money  under  his  plan  than  outside,  and  they 
signed  a  contract  for  a  remarkable  "joint  adventure."  Accord- 
ing to  this  document  Scofield,  Shurmer  and  Teagle  put  into 
the  business  a  plant  worth  at  that  time  about  $73,000  and 

[165] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
their  entire  time.  Mr.  Rockefeller  put  in  $10,000  and  his 
rebates!  That  is,  he  secured  for  the  firm  the  same  preferential 
rates  on  their  shipments  that  the  Standard  Oil  Company 
enjoyed.  The  firm  bound  itself  not  to  refine  over  85,000  bar- 
rels a  year  and  neither  jointly  nor  separately  to  engage  in  any 
other  form  of  oil  business  for  ten  years — the  life  of  the  con- 
tract. Scofield,  Shurmer  and  Teagle  were  guaranteed  a  profit 
of  $35,000  a  year.  Profits  over  $35,000  went  to  Mr.  Rocke- 
feller up  to  $70,000;  any  further  profits  were  divided. 

The  making  of  this  contract  and  its  execution  were  attended 
by  all  the  secret  rites  peculiar  to  Mr.  Rockefeller's  busi- 
ness ventures.  According  to  the  testimony  of  one  of  the  firm 
given  a  few  years  later  on  the  witness  stand  in  Cleveland  the 
contract  was  signed  at  night  at  Mr.  Rockefeller's  house  on 
Euclid  Avenue  in  Cleveland,  where  he  told  the  gentlemen 
that  they  must  not  tell  even  their  wives  about  the  new  arrange- 
ment, that  if  they  made  money  they  must  conceal  it — they 
were  not  to  drive  fast  horses,  "put  on  style,"  or  do  anything 
to  let  people  suspect  there  were  unusual  profits  in  oil  refin- 
ing. That  would  invite  competition.  They  were  told  that  all 
accounts  were  to  be  kept  secret.  Fictitious  names  were  to  be 
used  in  corresponding,  and  a  special  box  at  the  post-office  was 
employed  for  these  fictitious  characters.  In  fact,  smugglers 
and  house-breakers  never  surrounded  their  operations  with 
more  mystery. 

But  make  his  operations  as  thickly  as  he  might  in  secrecy, 
the  effect  of  Mr.  Rockefeller's  steady  and  united  attack  on  the 
refining  business  was  daily  becoming  more  apparent.  Before 
the  end  of  1876  the  alarm  among  oil  producers,  the  few  inde- 
pendent refineries  still  in  business,  and  even  in  certain  railroad 
circles  was  serious.  On  all  sides  talk  of  a  united  effort  to  meet 
the  consolidation  was  heard. 


[166] 


CHAPTER   SIX 
STRENGTHENING  THE   FOUNDATIONS 


FIRST  INTERSTATE  COMMERCE  BILL— THE  BILL  PIGEON-HOLED  THROUGH 
EFFORTS  OF  STANDARD'S  FRIENDS— INDEPENDENTS  SEEK  RELIEF  BY  PRO- 
POSED CONSTRUCTION  OF  PIPE-LINES— PLANS  FOR  THE  FIRST  SEABOARD 
PIPE-LINE— SCHEME  FAILS  ON  ACCOUNT  OF  MISMANAGEMENT  AND  STAND- 
ARD AND  RAILROAD  OPPOSITION— DEVELOPMENT  OF  THE  EMPIRE  TRANS- 
PORTATION COMPANY  AND  ITS  PROPOSED  CONNECTION  WITH  THE  REFINING 
BUSINESS— STANDARD,  ERIE  AND  CENTRAL  FIGHT  THE  EMPIRE  TRANSPOR- 
TATION COMPANY  AND  ITS  BACKER,  THE  PENNSYLVANIA  RAILROAD— THE 
PENNSYLVANIA  FINALLY  QUITS  AFTER  A  BITTER  AND  COSTLY  WAR— EMPIRE 
LINE  SOLD  TO  THE  STANDARD— ENTIRE  PIPE-LINE  SYSTEM  OF  OIL  REGIONS 
NOW  IN  ROCKEFELLER'S  HANDS— NEW  RAILROAD  POOL  BETWEEN  FOUR 
ROADS— ROCKEFELLER  PUTS  INTO  OPERATION  SYSTEM  OF  DRAWBACKS 
ON  OTHER  PEOPLE'S  SHIPMENTS— HE  PROCEEDS  RAPIDLY  WITH  THE  WORK 
OF  ABSORBING  RIVALS. 

FROM  the  time  the  Central  Association  announced 
itself,  independent  refiners  and  the  producers  as  a 
body  watched  developments  with  suspicion.  They 
had  little  to  go  on.  They  had  no  means  of  proving 
what  was  actually  the  fact  that  the  Central  Association 
was  the  Standard  Oil  Company  working  secretly  to  bring 
its  competitors  under  control  or  drive  them  out  of  business. 
They  had  no  way  of  knowing  what  was  actually  the  fact 
that  the  Standard  had  contracts  with  the  Central,  Erie 
and  the  Pennsylvania  which  gave  them  rebates  on  the  low- 
est tariff  which  others  paid.  That  this  must  be  the  case, 
however,  they  were  convinced,  and  they  determined  early  in 

Ii  876  to  call  on  Congress  for  another  investigation.  A  hearing 
[167] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

was  practically  insured,  for  Congress  since  1872  had  given 
serious  attention  to  the  transportation  troubles.  The  Windom 
Committee  of  1874  had  made  a  report,  the  sweeping  recom- 
mendations of  which  gave  much  encouragement  to  those  who 
suffered  from  the  practices  of  the  railroads.  Among  other 
things  this  committee  recommended  that  all  rates,  drawbacks, 
etc.,  be  published  at  every  point  and  no  changes  allowed  in 
them  without  proper  notification.  It  recommended  the  Bureau 
of  Commerce  which,  in  1902,  twenty-eight  years  later,  was 
created.  So  serious  did  the  Windom  Committee  consider  the 
situation  in  1874,  that  it  made  the  following  radical  recom- 
mendations : 

The  only  means  of  securing  and  maintaining  reliable  and  effective  competition 
between  railways  is  through  national  or  state  ownership,  or  control  of  one  or  more 
lines  which,  being  unable  to  enter  into  combinations,  will  serve  as  a  regulation  of 
other  lines. 

One  or  more  double-track  freight-railways  honestly  and  thoroughly  constructed, 
owned  or  controlled  by  the  government,  and  operated  at  a  low  rate  of  speed,  would 
doubtless  be  able  to  carry  at  a  much  less  cost  than  can  be  done  under  the  present 
system  of  operating  fast  and  slow  trains  on  the  same  road;  and,  being  incapable  of 
entering  into  combinations,  would  no  doubt  serve  as  a  very  valuable  regulator  of 
existing  railroads  within  the  range  of  their  influence. 

With  Congress  in  such  a  temper  the  oil  men  felt  that  there 
might  be  some  hope  of  securing  the  regulation  of  interstate 
commerce  they  had  asked  for  in  1872.  The  agitation  resulted 
in  the  presentation  in  the  House  of  Representatives,  in  April, 
of  the  first  Interstate  Commerce  Bill  which  promised  to  be 
effective.  The  bill  was  presented  by  James  H.  Hopkins  of 
Pittsburg.  Mr.  Hopkins  had  before  his  eyes  the  uncanny  fate 
of  the  independent  oil  interests  of  Pittsburg,  some  twenty-five 
factories  in  that  town  having  been  reduced  to  two  or  three 
in  three  and  one-half  years.  He  had  seen  the  oil-refining  busi- 
ness of  the  state  steadily  reduced,  and  he  thought  it  high 
time  that  something  was  done.  In  aid  of  his  bill  a  House 

[168] 


STRENGTHENING  THE  FOUNDATIONS 

investigation  was  asked.  It  was  soon  evident  that  the  Standard 
was  an  enemy  of  this  investigation.  Through  the  efforts  of 
a  good  friend  of  the  organisation — Congressman  H.  B.  Payne, 
of  Cleveland — the  matter  was  referred  to  the  Committee  on 
Commerce,  where  a  member  of  the  house,  J.  N.  Camden, 
whose  refinery,  the  Camden  Consolidated  Oil  Company,  if 
it  had  not  already  gone,  soon  after  went  into  the  Standard  Oil 
Alliance,  appeared  as  adviser  of  the  chairman!  Now  what 
Mr.  Hopkins  wanted  was  to  compel  the  railroads  to  present 
their  contracts  with  the  Standard  Oil  Company.  The  Com- 
mittee summoned  the  proper  railroad  officers,  Messrs.  Cassatt, 
Devereux  and  Rutter,  and  O.  H.  Payne,  treasurer  of  the 
Standard  Oil  Company.  Of  the  railroad  men,  only  Mr.  Cas- 
satt appeared,  and  he  refused  to  answer  the  questions  asked  or 
to  furnish  the  documents  demanded.  Mr.  Payne  refused  also 
to  furnish  the  committee  with  information.  The  two  principal 
witnesses  of  the  oil  men  were  E.  G.  Patterson  of  Titus- 
ville,  to  whose  energy  the  investigation  was  largely  due,  and 
Frank  Rockefeller  of  Cleveland,  a  brother  of  John  D. 
Rockefeller.  Mr.  Patterson  sketched  the  history  of  the  oil 
business  since  the  South  Improvement  Company  identified  the 
Standard  Oil  Company  with  that  organisation,  and  framed 
the  specific  complaint  of  the  oil  men,  as  follows:  "The  rail- 
road companies  have  combined  with  an  organisation  of  indi- 
viduals known  as  the  Standard  Ring;  they  give  to  that  party 
the  sole  and  entire  control  of  all  the  petroleum  refining  interest 
and  petroleum  shipping  interest  in  the  United  States,  and 
consequently  place  the  whole  producing  interest  entirely  at 
their  mercy.  If  they  succeed  they  place  the  price  of  refined  oil 
as  high  as  they  please.  It  is  simply  optional  with  them  how 
much  to  give  us  for  what  we  produce." 

Frank  Rockefeller  gave  a  pretty  complete  story  of  the 
trials  of  an  independent  refiner  in  Cleveland  during  the  pre- 
ceding four  years.   His  testimony  in   regard  to  the  South 

[169] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Improvement  Company  has  already  been  quoted.  He  declared 
that  at  the  moment,  his  concern,  the  Pioneer  Oil  Company, 
was  unable  to  get  the  same  rates  as  the  Standard ;  the  freight 
agent  frankly  told  him  that  unless  he  could  give  the  road 
the  same  amount  of  oil  to  transport  that  the  Standard  did 
he  could  not  give  the  rate  the  Standard  enjoyed.  Mr.  Rocke- 
feller said  that  in  his  belief  there  was  a  pooling  arrangement 
between  the  railroads  and  the  Standard  and  that  the  rebate 
given  was  "divided  up  between  the  Standard  Oil  Company 
and  the  railroad  officials."  He  repeatedly  declared  to  the  com- 
mittee that  he  did  not  know  this  to  be  a  positive  fact,  that 
he  had  no  proof,  but  that  he  believed  such  was  the  truth. 
Among  the  railroad  officials  whom  he  mentioned  as  in  his 
opinion  enjoying  spoils  were  W.  H.  Vanderbilt,  Thomas 
Scott  and  General  Devereux.  Of  course  the  newspapers  had 
it  that  he  had  sworn  that  such  was  the  fact.  Colonel  Scott 
promptly  wired  the  following  denial: 

"  The  papers  of  this  morning  publish  that  a  man  named  Rockefeller  stated  before 
your  committee  that  myself  and  other  officers  of  this  company  were  participants  in 
rebates  made  to  the  Standard  Oil  Company.  So  far  as  the  statement  relates  to  myself 
and  the  officers  of  this  company  it  is  unqualifiedly  false,  and  I  have  to  ask  that  you  will 
summon  the  officers  of  the  Standard  Oil  Company,  or  any  other  parties  that  may 
have  any  knowledge  of  that  subject,  in  order  that  such  villainous  and  unwarranted 
statements  may  be  corrected." 

General  Devereux  published  in  the  Cleveland  press  an 
equally  emphatic  denial.  Although  Mr.  Rockefeller  promptly 
declared  that  he  had  stated  to  the  committee  that  he  had  no 
personal  knowledge  that  there  was  such  a  pool  as  he  had 
intimated  between  the  railroad  men  and  the  Standard,  that  he 
had  only  given  his  suspicions,  there  were  plenty  of  people  to 
overlook  his  explanation  and  assert  that  he  had  given  proof  of 
such  a  division  of  spoils.  The  belief  spread  and  is  met  even 
to-day  in  oil  circles.  Now  the  only  basis  for  any  such  assertion 

[  170] 


STRENGTHENING  THE  FOUNDATIONS 

was  the  fact  that  W.  H.  Vanderbilt,  Peter  H.  Watson  and 

IAmasa  Stone  were  at  that  time,  1876,  stockholders  in  the 
Standard  Oil  Company.  There  is  no  evidence  of  which  the 
writer  knows  that  General  Devereux  or  Colonel  Scott  ever 
held  any  stock  in  the  concern.  Indeed,  in  1879,  when  A.  J. 
Cassatt  was  under  examination  as  to  the  relations  of  the  Penn- 
sylvania Railroad  and  the  Standard  Oil  Company,  his  own 
lawyer  took  pains  to  question  him  on  this  point — an  effort, 
no  doubt,  to  silence  the  accusation  which  at  that  date  was 
constantly  repeated. 

"Mr.  Cassatt,"  Mr.  MacVeagh  said, "I  want  to  direct  your  attention  to  a  personal 
matter  which  was  asked  you  to  a  certain  extent.  You  were  asked  whether  you  had 
any  knowledge  that  Mr.  Vanderbilt,  representing  the  New  York  Central,  or  Mr.  Jewett, 
representing  the  Erie,  had  any  interest  whatever  in  the  Standard  Oil  Company  or 
any  of  its  affiliated  companies.  I  wish  to  extend  that  question  to  the  other  trunk 
lines.  I  wish  you  would  state  whether  or  not  to  your  knowledge  Mr.  Garrett,  or  any- 
body representing  the  Baltimore  and  Ohio,  had  any  such  interest  ? " 

"They  have  not  to  my  knowledge." 

"Then  I  wish  you  would  state  whether  Mr.  Scott  or  yourself,  or  any  other  officers 
of  the  Pennsylvania  Railroad  Company,  had  any  such  interest  ?" 

"Never  to  my  knowledge.  I  speak  of  absolute  knowledge  as  to  myself,  but  as  to 
Mr.  Scott  to  the  best  of  my  knowledge  and  belief." 

Of  course  after  this  controversy  the  railroads  were  more 
obdurate  than  ever.  Mr.  Payne  and  Mr.  Camden  were  active, 
too,  in  securing  the  suppression  of  the  investigations  and  they 
soon  succeeded  not  only  in  doing  that  but  in  pigeon-holing 
for  the  time  Mr.  Hopkins's  Interstate  Commerce  Bill. 

But  the  oil  men  had  not  been  trusting  entirely  to  Con- 
gressional relief.  From  the  time  that  they  became  convinced 
that  the  railroads  meant  to  stand  by  the  terms  of  the  "Rutter 
lircular"  they  began  to  seek  an  independent  outlet  to  the 
sea.  The  first  project  to  attract  attention  was  the  Columbia 
Conduit  Pipe  Line.  This  line  was  begun  by  one  of  the  pictur- 

[171] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

csque  characters  of  Western  Pennsylvania,  "Dr."  David  Hos- 
tetter,  the  maker  of  the  famous  Hostetter's  Bitters.  Dr.  Hos- 
tetter's  Bitters'  headquarters  were  in  Pittsburg.  He  had  become 
interested  in  oil  there,  and  had  made  investments  in  Butler 
County.  In  1874  he  found  himself  hampered  in  disposing 
of  his  oil  and  conceived  the  idea  of  piping  it  to  Pittsburg, 
where  he  could  make  a  connection  with  the  Baltimore  and 
Ohio  road,  which  up  to  this  time  had  refused  to  go  into  the  oil 
pool.  Now  at  that  time  the  right  of  eminent  domain  for 
pipes  had  been  granted  in  but  eight  counties  of  Western 
Pennsylvania.  Allegheny  County,  in  which  Pittsburg  is 
located,  was  not  included  in  the  eight,  a  restriction  which  the 
oil  men  attributed  rightly,  no  doubt,  to  the  influence  of  the 
Pennsylvania  Railroad  in  the  State  Legislature.  That  road 
could  hardly  have  been  expected  to  allow  the  pipes  to  go  to 
Pittsburg  and  connect  with  a  rival  road  if  it  could  help  it.  Dr. 
Hostetter  succeeded  in  buying  a  right  of  way  through  the 
county,  however,  and  laid  his  pipes  within  a  few  miles  of  the 
city  to  a  point  where  he  had  to  pass  under  a  branch  of  the 
Pennsylvania  Railroad.  The  spot  chosen  was  the  bed  of  a 
stream  over  which  the  railroad  passed  by  a  bridge.  Dr.  Hos- 
tetter claimed  he  had  bought  the  bed  of  the  run  and  that  the 
railroad  owned  simply  the  right  to  span  the  run.  He  put  down 
his  pipes,  and  the  railroad  sent  a  force  of  armed  men  to  the 
spot,  tore  up  the  pipes,  fortified  their  position  and  prepared  to 
hold  the  fort.  The  oil  men  came  down  in  a  body,  and,  seizing 
an  opportune  moment,  got  possession  of  the  disputed  point. 
The  railroad  had  thirty  of  them  arrested  for  riot,  but  was  not 
able  to  get  them  committed;  it  did  succeed,  however,  in  pre- 
venting the  relaying  of  the  pipes  and  a  long  litigation  over  Dr. 
Hostetter's  right  to  pass  under  the  road  ensued.  Disgusted  with 
this  turn  of  affairs  Dr.  Hostetter  leased  the  line  to  three 
young  independent  oil  men  of  whom  we  are  to  hear  more 
later.  They  were  B.  D.  Benson,  David  McKelvy  and  Major 

[  172] 


STRENGTHENING  THE  FOUNDATIONS 

Robert  E.  Hopkins,  all  of  Titusville.  Resourceful  and  deter- 
lined  they  built  tank  wagons  into  which  the  oil  from  the  pipe 
ras  run  and  was  carted  across  the  tracks  on  the  public  high- 
way, turned  into  storage  tanks  and  again  repiped  and  pumped 
to  Pittsburg.  They  were  soon  doing  a  good  business.  The 
ight  to  get  the  Columbia  Conduit  Line  into  Pittsburg  aroused 
igain  the  agitation  in  favour  of  a  free  pipe-line  bill,  and  early 
in  1875  bills  were  presented  in  both  the  Senate  and  House  of 
the  state  and  bitter  and  long  fights  over  them  followed.  It 
was  charged  that  the  bills  were  in  the  interest  of  Dr.  Hos- 
tetter.  He  wants  to  transport  his  blood  bitters  cheaply,  sneered 
one  opponent!  Many  petitions  for  the  bill  were  circulated,  but 
there  were  even  stronger  remonstrances  and  the  source  of 
some  of  them  was  suspicious  enough;  for  instance,  that  of 
the  "Pittsburg  refiners  representing  about  one-third  of  the 
refining  capacity  of  the  Pennsylvania  district  and  nearly  one- 
third  of  the  entire  capacity  now  in  business."  As  the  Pitts- 
burg refiners  were  nearly  all  either  owned  or  leased  by  the 
Standard  concern,  and  the  few  independents  had  no  hope  save 
in  a  free  pipe-line,  there  seems  to  be  no  doubt  about  the  origin 
of  that  remonstrance.  Although  the  bills  were  strongly  sup- 
ported, they  were  defeated,  and  the  Columbia  Conduit  Line 
continued  to  "break  bulk"  and  cart  its  oil  over  the  railroad 
track. 

Another  route  was  arranged  which  for  a  time  promised  suc^ 
cess.  This  was  to  bring  crude  oil  by  barges  to  Pittsburg,  then 
to  carry  the  refined  down  the  Ohio  River  to  Huntington  and 
thence  by  the  Richmond  and  Chesapeake  road  to  Richmond. 
This  scheme,  started  in  February,  was  well  under  way  by 
May,  and  "On  to  Richmond!"  was  the  cry  of  the  inde- 
pendents. Everything  possible  was  done  to  make  this  attempt 
fail.  An  effort  was  even  made  to  prevent  the  barges  which 
came  down  the  Allegheny  River  from  unloading,  and  this 
actually  succeeded  for  some  time.  There  seemed  to  be  always 

[173] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

some  hitch  in  each  one  of  the  channels  which  the  independents 
tried,  some  point  at  which  they  could  be  so  harassed  that  the 
chance  of  a  living  freight  rate  which  they  had  seen  was 
destroyed. 

Some  time  in  April,  1876,  the  most  ambitious  project  of 
all  was  announced.  This  was  a  seaboard  pipe-line  to  be  run 
from  the  Oil  Regions  to  Baltimore.  Up  to  this  time  the  pipe- 
lines had  been  used  merely  to  gather  the  oil  from  the  wells 
and  carry  it  to  the  railroads.  The  longest  single  line  in  oper- 
ation was  the  Columbia  Conduit,  and  it  was  built  thirty  miles 
long.  The  idea  of  pumping  oil  over  the  mountains  to  the 
sea  was  regarded  generally  as  chimerical.  To  a  trained  civil 
engineer  it  did  not,  however,  present  any  insuperable  obsta- 
cles, and  in  the  winter  of  1875  anc*  1876  Henry  Harley, 
whose  connection  with  the  Pennsylvania  Transportation  Com- 
pany has  already  been  noted,  went  to  his  old  chief  in  the  Hoo- 
sac  Tunnel,  General  Herman  Haupt,  and  laid  the  scheme 
before  him.  If  it  was  a  feasible  idea  would  General  Haupt 
take  charge  of  the  engineering  for  the  Pennsylvania  Trans- 
portation Company?  At  the  same  time  Mr.  Harley  employed 
General  Benjamin  Butler  to  look  after  the  legal  side  of  such 
an  undertaking.  Both  General  Haupt  and  General  Butler 
were  enthusiastic  over  the  idea  and  took  hold  of  the  work 
with  a  will.  It  was  not  long  before  the  scheme  began  to 
attract  serious  attention.The  Eastern  papers  in  particular  took 
it  up.  The  references  to  it  were,  as  a  whole,  favourable.  It 
was  regarded  everywhere  as  a  remarkable  undertaking: 
"Worthy,"  the  New  York  Graphic  said,  "to  be  coupled  with 
the  Brooklyn  Bridge,  the  blowing  up  of  Hell  Gate,  and  the 
tunnelling  of  the  Hudson  River."  As  General  Haupt's  plans 
show,  it  was  a  tremendous  undertaking,  for  the  line  would  be, 
when  finished,  at  least  500  miles  long,  and  it  would  be 
worked  by  thirty  or  more  tremendous  pumps.  On  July  25  a 
meeting  was  held  at  Parker's  Landing,  presenting  publicly 

[174] 


STRENGTHENING  THE  FOUNDATIONS 

the  reports  of  General  Haupt  and  General  Butler.  The 
authority  and  seriousness  of  the  scheme  as  set  forth  at  this 
meeting  alarmed  the  railroads.  If  this  seaboard  line  went 
through  it  was  farewell  to  the  railroad-Standard  combination. 
Oil  could  be  shipped  to  the  seaboard  by  it  at  a  cost  of  16  2-3 
cents  a  barrel,  General  Haupt  estimated.  All  of  the  interests, 
little  and  big,  which  believed  that  they  would  be  injured  by 
the  success  of  the  line,  began  an  attack. 

Curiously  enough  one  of  the  first  points  of  hostility  was 
General  Haupt  himself.  An  effort  was  made  to  discredit  his 
estimate  in  order  to  scare  people  from  taking  stock.  They 
recalled  the  Hoosac  Tunnel  scandal  and  the  fact  that  the 
General  once  built  a  bridge  which  had  tumbled  down,  ridi- 
culed his  estimate  of  the  cost,  etc.,  etc.  The  "card"  in  which 
General  Haupt  answered  his  chief  critic,  one  who  signed 
himself  "Vidi,"  was  admirable: 

A  CARD  FROM  GENERAL  HAUPT 
What  are  the  charges  that  I  am  requested  to  "smash"  ? 
They  are,  as  I  understand  them  from  others,  for  some  I  have  not  seen : 

1.  That  I  once  built  a  bridge  that  tumbled  down. 

2.  That  I  was  connected  with  the  Hoosac  Tunnel  that  cost  seventeen  millions  of 
dollars. 

3.  That  my  estimates  of  cost  of  transportation  are  ridiculously  low  and  unreliable. 

1.  I  did  design  a  bridge  some  twenty  years  ago,  and  constructed  a  span  near  Green- 
field, in  Massachusetts,  which  gave  way,  owing  to  a  defective  casting,  while  being 
tested.  The  bridge  was  not  finished;  had  not  been  opened  to  the  public;  had  not  been 
accepted  from  the  contractor,  who  repaired  the  damage  in  such  a  manner  that  a  re- 
currence of  a  break  would  have  been  impossible.  I  have  built  spans  of  bridges  and 
tested  them  until  they  broke,  to  ascertain  their  ultimate  strength,  but  I  supposed 
that  this  was  a  matter  that  concerned  myself  and  not  the  public.  If  the  bridge  had 
been  thrown  open  for  public  use,  and   an  accident  had  then  occurred  from  defective 

sign  or  material,  the  engineer  might  have  been  censurable,  but  not  otherwise.  In 
experience  of  nearly  forty  years  I  have  never  had  a  bridge  to  fail,  after  being  opened 
>r  travel,  or  a  piece  of  masonry  to  give  way.  No  accident  occurred  even  upon  the 
iporary  military  bridges  constructed  during  the  war,  which  President  Lincoln  used 
say  were  built  of  bean  poles  and  corn  stalks. 

[175] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

2.  How  about  the  Hoosac  Tunnel  ? 

In  1856  I  undertook  to  build  the  Hoosac  Tunnel,  at  that  time  ridiculed  as  visionary 
and  utterly  impracticable.  I  carried  it  on  until  1862,  when  its  practicability  was  so 
fully  demonstrated  that  it  was  considered  some  discredit  to  Massachusetts  to  allow 
the  work  to  proceed  under  engineers  from  another  state,  and  honourable  members 
of  the  Legislature  declared  that  Massachusetts  had  engineers  as  competent  as  any 
that  could  be  found  in  Pennsylvania.  The  work  in  my  hands,  as  was  proved  by  reports 
of  investigating  committees,  was  costing  less  than  $2,000,000,  and  the  trouble  then 
was  that  the  margin  was  considered  too  large,  and  that  I  was  making  too  much  money 
on  the  $2,000,000,  which  the  state  had  agreed  to  advance.  In  1862  the  state  took 
the  work  out  of  my  hands  and  put  it  under  control  of  state  commissioners  and  engineers. 
The  result  was  that  instead  of  getting  the  Hoosac  Tunnel  completed  for  $2,000,000, 
which  was  amply  sufficient  in  the  hands  of  H.  Haupt  and  Company,  it  has  now 
cost,  under  state  management,  nearly  $17,000,000. 

I  hope  this  explanation  will  be  considered  sufficient  to  "smash"  Number  2. 

3.  As  to  Number  3,  the  insufficiency  of  my  estimate. 

The  items  which  enter  into  such  an  estimate  are  pure  and  simple.  There  has  been 
but  one  omission,  and  that  is  malicious  mischief  or  deviltry,  and  this  item  is  so  uncertain 
that,  without  a  more  intimate  acquaintance  with  "Vidi"  and  his  supporters,  I  could 
not  undertake  to  estimate  it. 

I  have  put  coal  at  five  dollars  per  ton  or  eighteen  cents  per  bushel,  now  worth  five 
cents  at  Brady's  and  eight  at  Pittsburg.  Is  not  this  enough  ?  I  have  allowed  fifty  per 
cent,  greater  consumption  at  each  station  than  has  been  estimated  by  others.  I  have 
allowed  $1,000  a  year  for  each  of  two  engine  men  at  each  station.  Will  anyone  say 
this  is  not  sufficient  ?  And  I  have,  to  be  safe,  estimated  the  work  down  below  the  results 
given  by  any  of  the  ordinary  hydraulic  formula.  It  would  be  absurd  to  tell  experienced 
pipe  men  that  oil  cannot  be  pumped  fifteen  miles  under  900  pounds  pressure  through 
a  four-inch  pipe  with  a  discharge  of  5,000  barrels  per  day,  which  is  all  that  the  esti- 
mate is  based  upon,  and  it  allows  sixty-five  days'  stoppage  besides. 

Please,  gentlemen,  let  me  alone.  I  have  had  enough  of  newspaper  controversy  in 
former  years.  I  am  sick  of  it. 

H.  Haupt. 

At  the  same  time  that  General  Haupt  was  attacked  the 
Pennsylvania  Transportation  Company  was  criticised  for  bad 
management.  A  long  letter  to  the  Derrick  August  14,  1876, 
claimed  that  the  company  in  the  past  had  been  mismanaged; 
that  the  credit  it  asked  could  not  be  given  safely;  that  its 
management  had  been  such  that  it  had  scarcely  any  business 

[176] 


STRENGTHENING  THE  FOUNDATIONS 

left.  Indeed  this  critic  claimed  that  the  last  pipe-line  organ- 
ised, a  small  line  known  as  the  Keystone,  had  during  the  last 
six  months  done  almost  double  the  business  of  the  Pennsyl- 
vania. Under  the  direction  of  the  Pennsylvania  Railroad,  it 
was  believed,  the  Philadelphia  papers  began  to  attack  the  plan. 
Their  claim  was  that  the  charters  under  which  the  Pennsyl- 
vania Transportation  Company  expected  to  operate  would  not 
allow  them  to  lay  such  a  pipe-line.  The  opposition  became  such 
that  the  New  York  papers  began  to  take  notice  of  it.  The 
Derrick  on  September  16,  1876,  copies  an  article  from  the 
New  York  Bulletin  in  which  it  is  said  that  the  railroads 
and  the  Standard  Oil  Company,  "now  stand  in  gladiatorial 
array,  with  shields  poised  and  sword  ready  to  deal  the  cut." 
An  opposition  began  to  arise,  too,  from  farmers  through  whose 
property  an  attempt  was  being  made  to  obtain  right  of  way. 
In  Indiana  and  Armstrong  counties  the  farmers  complained 
to  the  secretary  of  internal  affairs,  saying  that  the  company 
had  no  business  to  take  their  property  for  a  pipe-line.  One  of 
the  common  complaints  of  the  farmers'  newspapers  was  that 
leakage  from  the  pipes  would  spoil  the  springs  of  water, 
curdle  milk,  and  burn  down  barns.  The  matter  assumed  such 
proportions  that  the  secretary  referred  it  to  the  attorney- 
general  for  a  hearing.  In  the  meantime  the  Pennsylvania 
Transportation  Company  ma3e  the  most  strenuous  efforts  to 
secure  the  right  of  way.  A  large  number  of  men  were  sent  out 
to  talk  over  the  farmers  into  signing  the  leases.  Hand  bills 
were  distributed  with  an  appeal  to  be  generous  and  to  free 
the  oil  business  from  a  monopoly  that  was  crushing  it.  These 
same  circulars  told  the  farmers  that  a  monopoly  had  hired 
agents  all  along  the  route  misrepresenting  the  facts  about  their 
intentions.  Mr.  Harley,  under  the  excitement  of  the  enter- 
prise and  the  opposition  it  aroused,  became  a  public  figure, 
and  in  October  the  New  York  Graphic  gave  a  long  interview 
with  him.  In  this  interview  Mr.  Harley  claimed  that  the 

[177] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

pipe-line  scheme  was  gotten  up  to  escape  the  Standard  Oil 
monopoly.  Litigation,  he  declared,  was  all  his  scheme  had 
to  fear.  "John  ^-  Rockefeller,  president  of  the  Standard 
monopoly,"  he  said,  "is  working  against  us  in  the  country 
newspapers,  prejudicing  the  farmers  and  raising  issues  in  the 
courts,  and  seeking  also  to  embroil  us  with  other  carrying 
lines." 

It  was  not  long,  however,  before  something  more  serious 
than  the  farmers  and  their  complaints  got  in  the  way  of  the 
Pennsylvania  Transportation  Company.  This  was  a  rumour 
that  the  company  was  financially  embarrassed.  Their  certifi- 
cates were  refused  on  the  market,  and  in  November  a  receiver 
was  appointed.  Different  members  of  the  company  were 
arrested  for  fraud,  among  them  two  or  three  of  the  best 
known  men  in  the  Oil  Regions.  The  rumours  proved  only 
too  true.  The  company  had  been  grossly  mismanaged,  and 
the  verification  of  the  charges  against  it  put  an  end  to  this 
first  scheme  for  a  seaboard  pipe-line. 

While  all  these  efforts  doomed  to  failure  or  to  but  tem- 
porary success  were  making,  a  larger  attempt  to  meet  Mr.; 
Rockefeller's  consolidation  was  quietly  under  way.  Among; 
those  interested  in  the  oil  business  who  had  watched  the  grow- 
ing power  of  the  Standard  with  most  concern  was  the  head  of  j 
the  Empire  Transportation  Company,  Colonel  Joseph  D. 
Potts.  In  connection  with  the  Pennsylvania  Railroad  Colonel 
Potts  had  built  up  this  concern,  founded  in  1865,  until  it  was 
the  most  perfectly  developed  oil  transporter  in  the  country. 
It  operated  500  miles  of  pipe,  owned  a  thousand  oil-tank 
cars,  controlled  large  oil  yards  at  Communipaw,  New  Jersey, 
was  in  every  respect  indeed  a  model  business  organisa- 
tion, and  it  had  the  satisfaction  of  knowing  that  what  it  was 
it  had  made  itself  from  raw  material,  that  its  methods  were 
its  own,  and  that  the  practices  it  had  developed  were  those 
followed  by  other  pipe-line  companies.  While  the  Empire 

[178] 


STRENGTHENING  THE  FOUNDATIONS 

had  far  outstripped  all  its  early  competitors,  there  had  grown 
up  in  the  last  year  a  rival  concern  which  Colonel  Potts  must 
have  watched  with  anxiety.  This  concern,  known  as  the  United 
Pipe  Line,  was  really  a  Standard  organisation,  for  Mr.  Rocke- 
feller, in  carrying  out  his  plan  of  controlling  all  the  oil  refin- 
eries of  the  country,  had  been  forced  gradually  into  the  pipe- 
line business. 

His  first  venture  seems  to  have  been  in  1873.  In  that  year  the 
oil  shipping  firm  of  J.  A.  Bostwick  and  Company  laid  a  short 
pipe  in  the  Lower  Field,  as  the  oil  country  along  the  Allegheny 
River  was  called.  Now  J.  A.  Bostwick  was  one  of  the  charter 
members  of  the  South  Improvement  Company,  and  when 
Mr.  Rockefeller  enlarged  his  business  in  1872  because  of  the 
power  that  enterprise  gave  him,  he  took  Mr.  Bostwick  into 
the  Standard.  This  alliance,  like  all  the  operations  of  that  ven- 
ture, was  secret.  The  bitterness  of  the  Oil  Regions  against 
the  members  of  the  South  Improvement  Company  was  so  great 
for  many  months  after  the  Oil  War  that  Mr.  Bostwick  and 
Mr.  Rockefeller  seem  to  have  concluded  in  1873  that  it  would 
be  a  wise  precautionary  measure  for  them  to  lay  a  pipe-line 
upon  which  they  could  rely  for  a  supply  of  oil  in  case  the  oil 
men  attempted  again  to  cut  them  of!  from  crude,  as  they  had 
succeeded  in  doing  in  1872.  Accordingly,  a  line  was  built  and 
put  in  the  charge  of  a  man  who  has  since  become  known  as  one 
of  the  "strong  men"  of  the  Standard  Oil  Company.  This 
man,  Daniel  O'Day,  was  a  young  Irishman  who  had  first 
appeared  in  the  oil  country  in  1867,  and  had  at  once  made  so 
good  a  record  for  himself  as  transporting  agent,  that  in  1869, 
when  the  oil  shipping  firm  of  J.  A.  Bostwick  needed  a  man 
to  look  after  its  shipments,  he  was  employed.  The  record 
he  made  in  the  next  two  years  was  such  that  it  reached  the 
ear  of  Jay  Gould  himself,  the  president  of  the  Erie,  over 
which  Mr.  Bostwick  was  doing  most  of  his  shipping.  Now  the 
Erie  at  this  time  was  making  a  hard  fight  to  meet  the  growth 

[  i79] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

of  the  Empire  Transportation  Company.  So  important  did 
Jay  Gould  think  this  struggle  that  in  1871  he  himself  came  to 
the  Oil  Regions  to  look  after  it.  One  of  the  first  men  sum- 
moned to  his  private  car  as  it  lay  in  Titusville  was  the  young 
Irishman,  O'Day.  He  came  as  he  was,  begrimed  with  the 
oil  of  the  yards,  but  Mr.  Gould  was  looking  for  men  who 
could  do  things,  and  was  big  enough  to  see  through  the  grime. 
When  the  interview  was  concluded,  Daniel  O'Day  had  con- 
vinced Jay  Gould  that  he  was  the  man  to  divert  the  oil  traffic 
from  the  Pennsylvania  to  the  Erie  road,  and  he  walked  out 
with  an  order  in  his  pocket  which  lifted  him  over  the  head 
of  everybody  on  the  road  so  far  as  that  particular  freight  was 
concerned,  for  it  gave  him  the  right  to  seize  cars  wherever  he 
found  them.  For  weeks  after  this  he  practically  lived  on  the 
road,  turning  from  the  Pennsylvania  in  this  time  a  large  vol- 
ume of  freight,  and  making  it  certain  that  it  would  have  to 
look  to  its  laurels  as  it  never  had  before. 

The  next  year  after  this  episode  came  the  Oil  War.  The 
anger  of  the  oil  men  was  poured  out  on  everyone  connected 
in  any  way  with  the  stockholders  of  the  South  Improvement 
Company,  and  among  others  on  Mr.  O'Day.  He  knew  no 
more  of  the  South  Improvement  Company  at  the  start  than 
the  rest  of  the  region,  but  he  did  know  that  it  was  his  business 
to  take  care  of  certain  property  entrusted  to  him.  Resolutions 
calling  on  him  to  resign  were  passed  by  oil  exchanges  and 
producers'  unions.  Mobs  threatened  his  cars,  his  stations,  his 
person,  but  with  the  grit  of  his  race  he  hung  to  his  post.  There 
was,  perhaps,  but  one  other  man  in  the  employ  of  members  of 
the  South  Improvement  Company  who  showed  the  same  cour- 
age, and  that  was  Joseph  Seep  of  Titusville.  Almost  every 
other  employee  fled,  the  principals  in  the  miserable  business 
took  care  to  stay  out  of  the  country,  but  Mr.  O'Day  and  Mr. 
Seep  polished  their  shillalahs  and  stood  over  their  property 
night  and  day  until  the  war  was  over.  Their  courage  did  not  go 

[180] 


STRENGTHENING  THE  FOUNDATIONS 

unrewarded.  They  were  made  the  chief  executive  representa- 
tives, in  the  region,  of  the  consolidated  Standard  interests 
which  followed  the  war,  though  neither  of  them  knew  at  the 
time  that  they  were  in  the  Standard  employ.  They  supposed 
that  the  shipper  Bostwick  was  an  independent  concern.  It  was 
a  man  of  grit  and  force  and  energy  then  who  took  hold  of  the 
Standard's  pipe-line  in  1873.  Rapid  growth  went  on.  The 
little  line  with  which  they  started  became  the  American  Trans- 
fer Company,  gradually  extending  its  pipes  to  seventy  or 
eighty  miles  in  Clarion  County,  and  in  1875  building  lines 
in  the  Bradford  Field. 

The  American  Transfer  Company  was  soon  working  in 
harmony  with  the  United  Pipe  Lines,  of  which  Captain  J.  J. 
Vandergrift  was  the  president.  This  system  had  its  nucleus, 
like  all  the  others  of  the  country,  in  a  short  private  line,  built 
in  1869  by  Captain  Vandergrift.  It  had  grown  until  in  1874  it 
handled  thirty  per  cent,  of  the  oil  of  the  region.  Now  in 
1872,  after  the  Oil  War,  Captain  Vandergrift  had  become  a 
convert  to  Mr.  Rockefeller's  theory  of  the  "good  of  the  oil 
business,"  and  as  we  have  seen,  had  gone  into  the  National 
Refiners'  Association  as  vice-president.  Later  he  became  a 
director  in  the  Standard  Oil  Company.  In  1874  he  sold  a  one- 
third  interest  of  his  great  pipe-line  system  to  Standard  men, 
and  the  line  was  reorganised  in  the  interests  of  that  company. 
That  is,  the  Standard  Oil  Combination  in  1876  was  a  large 
transporter  of  oil,  for  the  directors  and  leading  stockholders 
owned  and  operated  fully  forty  per  cent,  of  the  pipe-lines  of 
the  Oil  Regions,  owned  all  but  a  very  few  of  the  tank  cars  on 
both  the  Central  and  Erie  roads,  and  controlled  under  leases 
two  great  oil  terminals,  those  of  the  Erie  and  Central  roads. 
It  was  little  wonder  that  Colonel  Potts  watched  this  rapid 
concentration  of  transportation  and  refining  interests  with 
dread.  It  was  more  dangerous  than  the  single  shipper,  and 
he  had  always  fought  that  idea  on  the  ground  of  policy.  "In 

[181] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  first  place,  it  concentrates  great  power  in  the  hands  of  one 
party  over  the  trade  of  the  road,"  he  told  an  investigating 
committee  of  Congress  in  1888.  "They  can  remove  it  at  pleas- 
ure. In  the  second  place  I  think  a  large  number  of  parties 
engaged  in  the  same  trade  are  very  apt  to  divide  themselves 
into  two  different  classes  as  to  the  way  of  viewing  markets; 
one  class  will  be  hopeful,  and  the  other  the  reverse.  The 
result  will  be  there  will  be  always  one  or  the  other  class 
engaged  in  shipping  some  of  the  traffic.  .  .  .  The  whole 
question  seems  to  me  to  resolve  itself  into  determining  what 
policy  will  bring  the  largest  volume  in  the  most  regular  way 
to  the  carrier;  and  it  is  my  opinion,  based  upon  such  experi- 
ence as  I  have  had,  that  a  hundred  shippers  of  a  carload  a  day 
would  be  sure  to  give  to  a  carrier  a  more  regular  volume  of 
business,  and  I  think,  probably,  a  larger  total  volume  of  busi- 
ness in  a  year's  time  than  one  shipper  of  a  hundred  cars  a 
day."  * 

Holding  this  theory,  Colonel  Potts  had  opposed  the  rebate 
to  the  Standard  granted  by  the  Pennsylvania  in  1875.  Three 
years  later  he  described  in  a  communication,  published  anony- 
mously, the  effect  of  the  rebates  granted  at  that  time : 

"  The  final  agreement  with  the  railways  was  scarcely  blotter-dried  ere  stealthy  move- 
ments toward  the  whole  line  of  outside  refiners  were  evident,  although  rather  felt 
than  seen.  As  long  as  practicable,  they  were  denied  as  mere  rumours,  but  as  they 
gradually  became  accomplished  victories,  as  one  refiner  after  another,  through  terror, 
through  lack  of  skill  in  ventures,  through  financial  weakness,  fell  shivering  with  dislike 
into  the  embrace  of  this  commercial  octopus,  a  sense  of  dread  grew  rapidly  among 
those  independent  interests  which  yet  lived,  and  notably  among  a  portion  of  the  railroad 
transporters. " 

The  chief  "railroad  transporter"  who  shared  with  the  inde- 
pendents the  sense  of  dread  which  Mr.  Rockefeller's  absorp- 
tion of  refineries  awakened  was  Mr.  Potts  himself.  As  he  saw 

*  Proceedings  in  Relation  to  Trusts,  House  of  Representatives,  1888.  Report 
Number  3112. 

[182] 


STRENGTHENING  THE  FOUNDATIONS 

the  independents  of  Pittsburg,  Philadelphia,  New  York  and 
the  creek,  shutting  down,  selling  out,  going  into  bankruptcy, 
while  the  Standard  and  its  allies  grew  bigger  day  by  day,  as 
he  saw  the  Standard  interest  developing  a  system  of  trans- 
portation greater  than  his  own,  he  concluded  to  prevent,  if 
possible,  the  one  shipper  in  the  oil  business.  "We  reached 
the  conclusion,"  said  Colonel  Potts  in  1888,  "that  there  were 
three  great  divisions  in  the  petroleum  business — the  produc- 
tion, the  carriage  of  it,  and  the  preparation  of  it  for  mar- 
ket. If  any  one  party  controlled  absolutely  any  one  of  those 
three  divisions,  it  practically  would  have  a  very  fair  show 
of  controlling  the  others.  We  were  particularly  solicitous 
about  the  transportation,  and  we  were  a  little  afraid  that 
the  refiners  might  combine  in  a  single  institution,  and  some 
of  them  expressed  a  strong  desire  to  associate  themselves 
permanently  with  us.  We  therefore  suggested  to  the  Penn- 
sylvania road  that  we  should  do  what  we  did  not  wish 
to  do — associate  ourselves.  That  is,  our  business  was  trans- 
portation and  nothing  else;  but,  in  order  that  we  might 
reserve  a  nucleus  of  refining  capacity  to  our  lines,  we  suggested 
we  should  become  interested  in  one  or  more  refineries,  and 
we  became  interested  in  two,  one  in  Philadelphia  and  one  in 
New  York.  It  was  incidental  merely  to  our  transportation. 
The  extreme  limit  was  4,000  barrels  a  day  only." 

It  was  in  the  spring  of  1876  that  the  Empire  began  to 
interest  itself  in  refineries.  No  sooner  did  Mr.  Rockefeller 
discover  this  than  he  sought  Mr.  Scott  and  Mr.  Cassatt,  then 
the  third  vice-president  of  the  Pennsylvania,  in  charge  of 
transportation.  It  was  not  fair!  Mr.  Rockefeller  urged.  The 
Empire  was  a  transportation  company.  If  it  went  into  the 
refining  business  it  was  not  to  be  expected  that  it  would  deal 
as  generously  with  rivals  as  with  its  own  factories;  besides,  it 
would  disturb  the  one  shipper  who,  they  all  had  agreed,  was 
such  a  benefit  to  the  railroads.  Mr.  Scott  and  Mr.  Cassatt 

[183] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
might  have  reminded  Mr.  Rockefeller  that  he  was  as  truly 
a  transporter  as  the  Empire,  but  if  they  did  they  were  met 
with  a  prompt  denial  of  this  now  well-known  fact.  He  was 
an  oil  refiner — only  that  and  nothing  more.  "They  tell  us  that 
they  do  not  control  the  United  Pipe  Lines,"   Mr.  Cassatt 
said  in  his  testimony  in  1879.  Besides,  urged  Mr.  Rockefeller,  I 
if  they  have  refineries  of  course  they  will  give  them  better   : 
terms  than  they  do  us.  Mr.  Flagler  told  the  Congressional 
Committee  of  1888  that  the  Standard  was  unable  to  obtain 
rates  through  the  Empire  Transportation  Company  over  the 
Pennsylvania  Railroad  for  the  Pittsburg  or  Philadelphia  re- 
fineries as  low  as  were  given  by  competing  roads,  and,  added   1 
he,  "from  the  fact  that  the  business  during  those  years  was 
so  very  close  as  to  leave  scarcely  any  margin  of  profit  under 
the  most  advantageous  circumstances.  And  we,  finding  our-  j 
selves  undersold  in  the  markets  by  competitors  whom  we  knew 
had  not  the  same  facilities  in  the  way  of  mechanical  appli- 
ances for  doing  the  business,  knew  that  there  was  but  one  con-  | 
elusion  to  be  reached,  and  that  was  that  the  Empire  Transpor- 
tation Company  favoured  certain  other  shippers,  I  would  say 
favoured  its  own  refineries  to  our  injury." 

As  the  Standard  Oil  Company  paid  a  dividend  of  about 
fourteen  per  cent,  in  both  1875  and  1876,  besides  spending 
large  sums  in  increasing  its  plants  and  facilities,  the  margin  of 
profit  cannot  have  been  so  low  as  it  seemed  to  Mr.  Flagler 
in  1888  to  have  been;  naturally  enough,  for  he  saw  dividends 
of  from  fifty  to  nearly  100  per  cent,  later. 

Mr.  Vanderbilt  and  Mr.  Jewett  soon  joined  their  protests 
to  Mr.  Rockefeller's.  "The  steps  it  (the  Empire)  was  then 
taking,"  said  Mr.  Jewett,  "unless  checked  would  result  in  a 
diversion  largely  of  the  transportation  of  oil  from  our  roads; 
the  New  York  Central  road  and  our  own  determined  that 
we  ought  not  to  stand  by  and  permit  those  improvements  and 
arrangements  to  be  made  which,  when  completed,  would  be 

[184] 


A.    J.    CASSATT 


l877 


Third  vice-president  of  the  Pennsylvania  Rail- 
road in  charge  of  transportation  when  first  con- 
tract was  made  by  that  road  with  the  Standard 
Oil  Company. 


GENERAL   GEORGE   B.    MC  CLELLAN 

President  of  the  Atlantic  and  Great  Western 
Railroad  at  the  time  of  the  South  Improvement 
Company.  General  McClellan  did  not  sign  the 
contract. 


GENERAL  JAMES  H.  DEVEREUX 

Who  in  1868  as  vice-president  of  the  Lake 
Shore  and  Michigan  Southern  Railroad  first 
granted  rebates  to  Mr.  Rockefeller's  firm. 


JOSEPH    D.    POTTS 

President  of  the  Empire  Transportation  Com- 
pany. Leader  in  the  struggle  between  the  Penn- 
sylvania Railroad  and  the  Standard  Oil  Company 
in  1877. 


i 


STRENGTHENING  THE  FOUNDATIONS 

beyond  our  control."*  These  protests  increased  in  vehemence, 
until  finally  the  Pennsylvania  officials  remonstrated  with  Mr. 
Potts.  "We  endeavoured,"  says  Mr.  Cassatt,  "to  try  to  get 
those  difficulties  harmonised,  talked  of  getting  the  Empire 
Transportation  Company  to  lease  its  refineries  to  the  Stand- 
ard Oil  Company,  or  put  them  into  other  hands,  but  we  did 
not  succeed  in  doing  that."  "Rather  than  do  that,"  Colonel 
Potts  told  Mr.  Cassatt,  when  he  proposed  that  the  Empire 
sell  its  refineries,  "we  had  rather  you  would  buy  us  out  and 
close  our  contract  with  you." 

When  the  Standard  Oil  Company  and  its  allies,  the  Erie 
and  Central,  found  that  the  Pennsylvania  would  not  or  could 
not  drive  the  Empire  from  its  position,  they  determined  on 
war.  Mr.  Jewett,  the  Erie  president,  in  his  testimony  of  1879 
before  the  Hepburn  Commission,  takes  the  burden  of  starting 
the  fight.  "Whether  the  Standard  Oil  Company  was  afraid 
of  the  Empire  Line  as  a  refiner,"  he  said,  "I  have  no  means 
of  knowing.  I  never  propounded  the  question.  We  were 
opposed  to  permitting  the  Empire  Line,  a  creature  of  the 
Pennsylvania  Railroad,  to  be  building  refineries,  to  become 
the  owners  of  pipe-lines  leading  into  the  oil  field  and  leading 
to  the  coast,  without  a  contest,  and  we  made  it  without  regard 
to  the  Standard  Oil  Company  or  anybody  else;  but  when  we 
did  determine  to  make  it,  I  have  no  doubt  we  demanded  of 
the  Standard  Oil  Company  during  the  contest  to  withdraw  its 
shipments  from  the  Pennsylvania."  Mr.  Flagler  gave  the 
following  version  of  the  affair  to  the  Congressional  Committee 
of  1888:— 

We  made  an  agreement  with  the  Empire  Transportation  Company  for  shipments 
over  the  Pennsylvania  Railroad  on  behalf  of  the  Pennsylvania  interests,  which  were 
then  owned  by  the  Standard  Oil  Company,  simply  because  there  was  no  alternative. 
It  was  the  only  vehicle  by  which  these  Pittsburg  refineries  and  the  Philadelphia,  re- 
fineries carried  their  crude  oil  over  the  Pennsylvania  Railroad.     There  was  no  other 

*  Report  of  the  Special  Committee  on  Railroads,  New  York  Assembly,  1879. 

[185] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

medium  by  which  business  could  be  done  over  the  Pennsylvania  Railroad,  except 
through  the  Empire  Transportation  Company,  a  subsidiary  company  of  the  Pennsyl- 
vania Railroad  Company.  The  Empire  Transportation  Company  was  not  only  the 
owner  of  pipe-lines  in  the  Oil  Regions,  and  tank-cars  on  the  Pennsylvania  Railroad, 
but  also  of  refineries  at  Philadelphia  and  New  York,  and  to  that  extent  were  our 
competitors.  We,  having  no  interest  whatever  in  transportation  *  naturally  felt 
jealous  of  the  Empire  Transportation  Company,  and  drew  the  attention  of  the  north- 
ern lines.  By  that  I  mean  the  New  York  Central  and  the  Erie  railroads.  With  the 
peculiar  position  of  the  oil  business  on  the  Pennsylvania  Railroad,  their  attention 
was  called  to  this  very  soon  after  the  Empire  Transportation  Company  began  the 
business  of  refining.  The  position  taken  by  the  two  Northern  trunk  lines  in  their 
intercourse  with  the  Pennsylvania  Railroad,  as  was  admitted  by  Mr.  Cassatt  in  his 
testimony,  and  stated  to  me  by  the  representatives  of  the  two  Northern  roads,  Mr. 
Vanderbilt  and  Mr.  Jewett,  was  that  it  was  unfair  to  them  that  the  Pennsylvania 
Railroad  did  not  divest  itself  of  the  manufacturing  business. 

Backed  by  the  Erie  and  Central,  Mr.  Rockefeller,  in  the 
spring  of  1877,  finally  told  Mr.  Cassatt  that  he  would  no 
longer  send  any  of  his  freight  over  the  Pennsylvania  unless 
the  Empire  gave  up  its  refineries.  The  Pennsylvania  refused 
to  compel  the  Empire  to  this  course.  According  to  Mr.  Potts's 
own  story,  the  road  was  partially  goaded  to  its  decision  by  a 
demand  for  more  rebates,  which  came  from  Mr.  Rockefeller 
at  about  the  time  he  pronounced  his  ultimatum  on  the  Em- 
pire. "They  swooped  upon  the  railways,"  says  Colonel  Potts, 
"with  a  demand  for  a  vast  increase  in  their  rebate.  They 
threatened,  they  pleaded,  it  has  been  said  they  purchased — 
however  that  may  be,  they  conquered.  Minor  officials  in- 
trusted with  the  vast  power  of  according  secret  rates  conceded 
all  they  were  asked  to  do,  even  to  concealing  from  their  supe- 
riors for  months  the  real  nature  of  their  illegal  agreements." 
Probably  it  was  at  this  time  that  there  took  place  the  little 
scene  between  Mr.  Vanderbilt  and  Mr.  Rockefeller  and  his 
colleagues,  of  which  the  former  told  the  Hepburn  Commis- 

*  The  Standard  Oil  Company  were  extensive  oil  transporters  at  that  time,  as  has 
been  shown. 

[186] 


STRENGTHENING  THE  FOUNDATIONS 

sion  in  1879.  The  Standard  people  were  after  more  rebates. 
They  affirmed  other  roads  were  giving  larger  rebates  than 
Mr.  Vanderbilt,  and  that  their  contract  with  him  obliged 
him  to  give  as  much  as  anybody  else  did. 

"Gentlemen,"  he  told  them,  "you  cannot  walk  into  this 
office  and  say  we  are  bound  by  any  contract  to  do  business 
with  you  at  any  price  that  any  other  road  does  that  is  in  com- 
petition with  us;  it  is  only  on  a  fair  competitive  basis,  a  fair 
competition  for  business  at  a  price  that  I  consider  will  pay 
the  company  to  do  it." 

Soon  after  this  interview,  so  rumour  says,  Mr.  Vanderbilt 
sold  the  Standard  stock  he  had  acquired  as  a  result  of  the 
deals  made  through  the  South  Improvement  Company.  "I 
think  they  are  smarter  fellows  than  I  am,  a  good  deal,"  he 
told  the  commission,  somewhat  ruefully.  "And  if  you  come 
in  contact  with  them  I  guess  you  will  come  to  the  same 
conclusion." 

Spurred  on  then  by  resentment  at  the  demands  for  new 
rebates,  as  well  as  by  the  injustice  of  Mr.  Rockefeller's 
demand  that  the  Empire  give  up  its  refineries,  the  Penn- 
sylvania accepted  the  Standard's  challenge,  resolved  to  stand 
by  the  Empire,  and  henceforth  to  treat  all  its  shippers  alike. 
No  sooner  was  its  resolution  announced  in  March,  1877,  than 
all  the  freight  of  the  Standard,  amounting  to  fully  sixty-five 
per  cent,  of  the  road's  oil  traffic,  was  taken  away.  An  exciting 
situation,  one  of  out-and-out  war,  developed,  for  the  Empire 
at  once  entered  on  an  energetic  campaign  to  make  good  its 
loss  by  developing  its  own  refineries,  and  by  forming  a  loyal 
support  among  the  independent  oil  men.  Day  and  night  the 
officers  worked  on  their  problem,  and  with  growing  success. 
When  Mr.  Rockefeller  saw  this  he  summoned  his  backers  to 
action.  The  Erie  and  Central  began  to  cut  rates  to  entice  away 
the  independents.  It  is  a  sad  reflection  on  both  the  honour  and 
the  foresight  of  the  body  of  oil  men  who  had  been  crying  so 

[187] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

loudly  for  help,  that  as  soon  as  the  rates  were  cut  on  the  Stand- 
ard lines  many  of  them  began  to  attempt  to  force  the  Pennsyl- 
vania to  follow.  "They  found  the  opportunity  for  immediate 
profits  by  playing  one  belligerent  against  the  other  too  tempt- 
ing to  resist,"  says  Colonel  Potts.  "We  paid  them  large 
rebates,"  said  Mr.  Cassatt;  "in  fact,  we  took  anything  we 
could  get  for  transporting  their  oil.  In  some  cases  we  paid 
out  in  rebates  more  than  the  whole  freight.  I  recollect  one 
instance  where  we  carried  oil  to  New  York  for  Mr.  Ohlen, 
or  someone  he  represented,  I  think  at  eight  cents  less  than 
nothing.  I  do  not  say  any  large  quantities,  but  oil  was  carried 
at  that  rate." 

While  the  railroads  were  waging  this  costly  war  the  Stand- 
ard was  carrying  the  fight  into  the  refined  market.  The 
Empire  had  gone  systematically  to  work  to  develop  markets 
for  the  output  of  its  own  and  of  the  independent  refineries. 
Mr.  Rockefeller's  business  was  to  prevent  any  such  develop- 
ment. He  was  well  equipped  for  the  task  by  his  system  of 
"predatory  competition,"  for  in  spite  of  the  fact  that  Mr. 
Rockefeller  claimed  that  underselling  to  drive  a  rival  from 
a  market  was  one  of  the  evils  he  was  called  to  cure,  he  did 
not  hesitate  to  employ  it  himself.  Indeed,  he  had  long  used 
his  freedom  to  sell  at  any  price  he  wished  for  the  sake  of 
driving  a  competitor  out  of  the  market  with  calculation  and 
infinite  patience.  Other  refiners  burst  into  the  market  and 
undersold  for  a  day;  but  when  Mr.  Rockefeller  began  to 
undersell,  he  kept  it  up  day  in  and  day  out,  week  in  and  week 
out,  month  in  and  month  out,  until  there  was  literally  noth- 
ing left  of  his  competitor.  A  former  official  of  the  Empire 
Transportation  Company,  who  in  1877  t0°k  an  active  part 
in  the  war  his  company  was  waging  against  the  Standard, 
once  told  the  writer  that  in  every  town,  North  or  South,  East 
or  West,  in  which  they  already  had  a  market  for  their  refined 
oil,  or  attempted  to  make  one,  they  found  a  Standard  agent 

[188]  * 


STRENGTHENING  THE  FOUNDATIONS 

on  hand  ready  to  undersell.  The  Empire  was  not  slow  in 
underselling.  It  is  very  probable  that  in  many  cases  it  began 
it,  for,  as  Mr.  Cassatt  says,  "They  endeavoured  to  injure  us 
and  our  shippers  all  they  could  in  that  fight,  and  we  did  the 
same  thing." 

In  spite  of  the  growing  bitterness  and  cost  of  the  contest, 
the  Empire  had  no  thought  of  yielding.  Mr.  Potts's  hope  was 
in  a  firm  alliance  with  the  independent  oil  men,  many  of  the 
strongest  of  whom  were  rallying  to  his  side.  At  the  begin- 
ning of  the  fight  he  had  very  shrewdly  enlisted  in  his  plan 
one  of  the  largest  independent  producers  of  the  day,  B.  B. 
Campbell,  of  Butler.  "Being  a  pleasure  and  a  duty  to  me," 
says  Mr.  Campbell,  "I  entered  into  the  service  with  all  the 
zeal  and  power  that  I  have.  I  made  a  contract  with  the 
Empire  Line  wherein  I  bound  myself  to  give  all  my  business 
to  this  line."  At  the  same  time  Mr.  Potts  sought  the  help  of 
the  man  who  was  generally  accepted  as  the  coolest,  most 
intelligent,  and  trustworthy  adviser  in  matters  of  transporta- 
tion the  Oil  Regions  had,  E.  G.  Patterson,  of  Titusville. 
Mr.  Patterson  was  a  practical  railroad  man,  and  an  able  and 
logical  opponent  of  the  rebate  and  "one  shipper"  systems. 
He  had  been  prominent  in  the  fight  against  the  South 
Improvement  Company,  and  since  that  time  he  had  persist- 
ently urged  the  independents  to  wage  war  only  on  the  practice 
of  rebates — to  refuse  them  themselves  and  to  hold  the  rail- 
roads strictly  to  their  duty  in  the  matter.  Several  conferences 
were  held,  and  finally,  in  the  early  summer,  Mr.  Potts  read 
the  two  gentlemen  a  paper  he  had  drawn  up  as  a  contract 
between  the  producers  and  the  Empire.  It  speaks  well  for 
the  fair-mindedness  of  Mr.  Potts  that  when  he  read  this  docu- 
ment to  Mr.  Campbell  and  Mr.  Patterson,  both  of  whom 
were  skilled  in  the  ways  of  the  transporter,  they  "accepted  it 


in  a  moment." 


"It  was  made  the  duty  of  Mr.  Patterson  and  myself  to  get 

[189] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

signatures  of  producers  to  this  agreement,"  says  Mr.  Camp- 
bell, "in  a  sufficient  amount  to  warrant  the  Pennsylvania  road 
entering  into  a  permanent  agreement.  The  contract,  I  think, 
was  for  three  years."  The  attempt  to  enlist  a  solid  body  of  oil 
men  in  the  scheme  was  at  once  set  on  foot,  but  hardly  was  it 
under  way  before  troubles  of  most  serious  import  came  upon 
the  Pennsylvania  road.  A  great  and  general  strike  on  all  its 
branches  tied  up  its  traffic  for  weeks.  In  Pittsburg  hundreds 
of  thousands  of  dollars'  worth  of  property  were  destroyed 
by  a  mob  of  railroad  employees.  It  is  not  too  much  to  say  that 
in  these  troubles  the  Pennsylvania  lost  millions  of  dollars; 
it  is  certain  that  as  a  result  of  them  the  company  that  fall 
and  the  coming  spring  had  to  pass  its'  dividends  for  the  first 
time  since  it  commenced  paying  them,  and  that  its  stock  fell 
to  twenty-seven  dollars  a  share  (par  being  fifty  dollars). 
Overwhelmed  by  the  disasters,  Mr.  Scott  and  Mr.  Cassatt  felt 
that  they  could  not  afford  any  longer  to  sustain  the  Empire  in 
its  fight  for  the  right  to  refine  as  well  as  transport  oil. 

While  the  coffers  of  the  Pennsylvania  were  empty,  those 
of  the  Standard  were  literally  bursting  with  profits;  for  the 
Standard,  the  winter  before  this  fight  came  on,  had  carried 
to  completion  for  the  first  time  the  work  which  it  had  been 
organised  to  accomplish,  that  is,  it  had  put  up  the  price  of 
refined  oil,  in  defiance  of  all  laws  of  supply  and  demand,  and 
held  it  up  for  nearly  six  months.  The  story  of  this  dramatic 
commercial  hold-up  is  told  in  the  next  chapter;  it  is  enough 
for  present  purposes  to  say  that  in  the  winter  of  1 876-1 877 
millions  of  gallons  of  oil  were  sold  by  Mr.  Rockefeller  and 
his  partners  at  a  profit  of  from  fifteen  to  twenty-five  cents  a 
gallon.  The  curious  can  compute  the  profits ;  they  certainly  ran 
into  the  multi-millions.  A  dividend  of  fifty  per  cent,  was 
paid  for  the  year  following  the  scoop,  and  "there  was  plenty 
of  money  made  to  throw  that  dividend  out  twice  over  and 
make  a  profit,"  Samuel  Andrews,  one  of  the  Standard's  lead- 

[  190] 


STRENGTHENING  THE  FOUNDATIONS 

ing  men,  told  an  Ohio  investigating  committee  in  1879.  The 
Standard  then  had  a  war  budget  big  enough  for  any  opposi- 
tion, and  it  is  not  to  be  wondered  at  that  the  Pennsylvania, 
knowing  this  and  rinding  its  own  treasury  depleted,  was  ready 
to  quit. 

It  was  August  when  Mr.  Scott  and  Mr.  Cassatt  decided 
to  give  up  the  fight.  Peace  negotiations  were  at  once  instituted, 
Mr.  Cassatt  going  to  Cleveland  to  see  Messrs.  Rockefeller 
and  Flagler,  and  Mr.  Warden,  who  was  visiting  them  there. 
Later,  the  same  gentlemen  met  Mr.  Scott  and  Mr.  Cassatt  at 
the  St.  George  Hotel,  in  Philadelphia.  "The  subject  of  dis- 
cussion at  these  meetings,"  said  Mr.  Cassatt  in  1879,  when 
under  examination,  "was  whether  we  could  not  make  some 
contract  or  agreement  with  the  Standard  Oil  Company  by 
which  this  contest  would  cease.  They  insisted  that  the  first 
condition  of  their  coming  back  on  our  line  to  ship  over  our 
road  must  be  that  the  Empire  Transportation  Company, 
which  company  represented  us  in  the  oil  business,  must  cease 
the  refining  of  oil  in  competition  with  them.  The  Empire 
Transportation  Company  objected  to  going  out  of  the  refin- 
ing business.  The  result  of  this  objection  Colonel  Potts  stated 
in  1888:  "Our  contract  with  the  Pennsylvania  road  gave  to 
them  the  option,  at  any  time  they  saw  proper,  upon  reason- 
able notice,  of  buying  our  entire  plant;  they  exercised  that 
option."  "Was  that  at  your  request  or  desire?"  the  chairman 
asked  the  Colonel.  "No,  sir.  It  was  at  the  request  of  the 
Pennsylvania  road  through  their  officials."  The  question  then 
came  up  as  to  who  should  buy  the  plant  of  the  Empire 
Transportation  Company.  "The  Standard  wanted  us  to  do 
so,"  says  Mr.  Cassatt.  "They  wanted  us  to  buy  the  pipe-lines v 
and  cars ;  we  objected  to  buying  the  pipe-lines,  and  it  resulted 

their  buying  them  and  the  refining  plants.  The  negoti- 
tions  were  carried  on  in  Philadelphia,  Mr.  Rockefeller  and 

r.  Flagler  mainly  representing  the  Standard.  A  substantial 

[191] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

agreement  was  reached  about  the  last  of  October.  The  agree- 
ment would  have  been  probably  perfected  about  that  time 
except  that  the  counsel  for  the  Empire  Line  thought  it  was 
necessary  that  they  should  advertise  the  fact  that  they  were 
going  to  sell  their  property,  and  have  a  meeting  of  their 
stockholders,  and  get  their  assent  to  the  sale  before  the  papers 
were  finally  signed." 

This  meeting  of  which  Mr.  Cassatt  speaks  was  held  on 
October  17.  Colonel  Potts  made  a  statement  to  the  stock- 
holders, which  he  began  by  a  brief  review  of  the  growth  of  the 
company  from  the  point  when  twelve  years  before  it  had 
started  as  a  new  route  charged  with  the  duty  of  meeting 
formidable  competitors.  He  pointed  out  that  at  the  close  of 
the  twelfth  year  the  company  was  the  owner  of  a  large  fleet 
of  lake  vessels,  of  elevators  and  docks  at  the  City  of  Erie,  of 
improved  piers  in  New  York  City,  of  nearly  5,000  cars, 
of  over  500  miles  of  pipe-lines,  of  valuable  interests  in 
refineries,  of  all  the  appliances  of  a  great  business.  In  these 
twelve  years,  Colonel  Potts  told  his  stockholders,  the  organi- 
sation had  collected  more  than  one  hundred  million  dollars, 
and  in  the  last  year  their  cars  had  moved  over  30,000 
miles  of  railway.  He  explained  to  the  stockholders  the  condi- 
tion of  the  oil  business  which  had  made  it  necessary,  in  his 
judgment,  for  the  Empire  Transportation  Company  to  go 
into  the  refining  business.  It  was  done  with  the  greatest  reluc- 
tance, Colonel  Potts  declared,  but  it  was  done  because  he  and 
his  colleagues  believed  that  there  was  no  other  way  for  them 
to  save  to  the  Pennsylvania  road  permanently  the  proportion 
of  the  oil  traffic  which  they  had  acquired  in  the  twelve  years 
in  which  they  had  been  in  business.  He  reviewed,  dispassion- 
ately, the  circumstances  which  had  led  the  Pennsylvania  road 
to  ask  the  company  to  give  up  its  refineries.  He  stated  his 
reasons  for  deciding  that  it  was  wiser  for  the  Empire  to 
resign  its  contracts  with  the  Pennsylvania  and  go  into  liquida- 

[192] 


STRENGTHENING  THE  FOUNDATIONS 

tion  than  to  submit  to  the  demands  of  the  Standard  interests. 
Colonel  Potts  followed  his  statement  by  an  abstract  of  the 
agreements  which  had  been  made  between  the  Standard  people 
and  the  Empire.  By  these  agreements  the  Standard  Oil  Com- 
pany bought  of  the  Empire  Transportation  Company  their 
pipe-line  interest  for  the  sum  of  $1,094,805.56,  their  refining 
interests  in  New  York  and  Philadelphia  for  the  sum  of  $501,- 
652.78,  $900,000  worth  of  Oil  Tank  Car  Trust,  and  they  also 
settled  with  outside  refiners  and  paid  for  personal  property 
to  the  extent  of  $900,000  more,  making  a  total  cash  payment 
of  $3,400,000.  Two  millions  and  a  half  of  this  money,  Colonel 
Potts  told  the  stockholders,  would  be  paid  that  evening  by 
certified  checks  if  the  agreements  were  ratified.  "Not  knowing 
what  your  action  might  be  at  this  meeting,"  he  concluded,  "we 
are  still  in  active  business.  We  could  not  venture  to  do  any- 
thing that  would  check  our  trade,  that  would  repel  customers, 
that  would  drive  any  of  them  away  from  us.  We  must  be 
prepared  if  you  said  no  to  go  right  along  with  our  full 
machinery  under  our  contract,  or  under  such  modification  of 
that  as  we  could  fight  through.  We  could  not  stop  moving 
a  barrel  of  oil.  We  must  be  ready  to  take  any  offered  to  us; 
we  must  supply  parties  taking  oil.  There  was  nothing  we  could 
do  but  what  was  done;  nothing  was  stopped,  nothing  is 
stopped,  everything  is  going  on  just  as  vigorously  at  this 
moment  through  as  wide  an  extent  of  country  as  ever  it  did, 
and  it  will  continue  to  do  so  until  after  you  take  action,  until 
after  we  get  these  securities  or  the  money.  That,  we  suppose, 
will  be  about  six  o'clock  to-day,  if  you  act  favourably,  and  at 
that  time  we  shall,  if  everything  goes  through,  telegraph  to 
every  man  in  our  service,  and  to  the  heads  of  departments 
what  has  been  done,  and  at  twelve  o'clock  to-night  we  shall 
cease  to  operate  anything  in  the  Empire  Transportation 
Company." 
The  stockholders  accepted  the  proposition,  and  that  night 

[  193] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

at  Colonel  Potts's  office  on  Girard  Street,  Philadelphia,  Mr. 
Scott  and  Mr.  Cassatt,  of  the  Pennsylvania  Railroad,  Colonel 
Potts  and  two  of  his  colleagues  in  the  Empire,  and  two  of  the 
refiners  with  whom  he  was  affiliated,  met  William  Rocke- 
feller, Mr.  Flagler,  Mr.  Warden,  Mr.  Lockhart,  Charles 
Pratt,  Jabez  A.  Bostwick,  Daniel  O'Day,  and  J.  J.  Vander- 
grift,  and  their  counsel,  and  the  papers  and  checks  were 
were  signed  and  passed,  wiping  out  of  existence  a  great  busi- 
ness to  which  a  body  of  the  best  transportation  men  the  state 
of  Pennsylvania  has  produced  had  given  twelve  years  of  their 
lives.  After  the  meeting  was  over,  there  were  sent  out  from 
Philadelphia  to  scores  of  employees  of  the  Empire  Trans- 
portation Company  scattered  throughout  the  state,  tele- 
grams stating  that  at  twelve  o'clock  that  night  the  company 
would  cease  to  exist.  For  twelve  years  the  organisation  had 
been  doing  a  growing  business.  On  the  date  of  this  telegram 
its  operations  were  more  extensive,  its  opportunities  more 
promising,  under  fair  play,  than  they  had  #er  been  before 
in  its  history.  The  band  of  men  who  had  bflfk  it  up  to  such 
healthy  success  were  not  giving  it  up  because  they  had  lost 
faith  in  it,  or  because  they  believed  there  were  larger  opportu- 
nities for  them  in  some  other  business;  they  were  giving  it 
up  because  they  were  compelled  to,  and  probably  men  never 
went  out  of  business  in  this  country  with  a*  deeper  feeling  of 
injustice  than  that  of  the  officials*  of  the  Empire  Transporta- 
tion Company  on  October  17,  1877,  when  they  sent  out  the 
telegrams  which  put  their  great  creation  into  liquidation. 

The  pipe-lines  thus  acquired  were  at  once  consolidated  with 
the  other  Standard  lines.  Only  a  few  independent  lines,  and 
only  one  of  these  of  importance — the  Columbia  Conduit — 
now  remained  in  the  Oil  Regions.  This  company  had  been 
doing  business,  since  1875,  under  the  difficulties  already  de- 
scribed. Dr.  Hostetter,  the  chief  stockholder,  had  become 
heartily  sick  of  the  oil  business  and  wanted  to  sell.  He  had 

[  194] 


STRENGTHENING  THE  FOUNDATIONS 

approached  the  Empire  Line,  and  there  had  been  some  negoti- 
ations. Then  came  the  fall  of  the  Empire  and  Dr.  Hostetter 
sought  the  United  Pipe  Line.  Intent  on  stopping  every  out- 
let of  oil  not  under  their  control  the  Standard  people  bought 
the  Columbia  Conduit.  By  the  end  of  the  year  the  entire  pipe- 
line system  of  the  Oil  Regions  was  in  Mr.  Rockefeller's 
hands.  He  was  the  only  oil  gatherer.  Practically  not  a  barrel 
of  oil  could  get  to  a  railroad  without  his  consent.  He  had 
set  out  to  be  simply  the  only  oil  refiner  in  the  country,  but 
to  achieve  that  purpose  he  had  been  obliged  to  make  himself 
an  oil  transporter.  In  such  unforseen  paths  do  great  ambi- 
tions lead  men! 

The  first  effect  of  the  downfall  of  the  Empire  was  a  new 
railroad  pool.  Indeed  when  it  became  evident  that  the  Penn- 
sylvania would  yield,  the  Erie,  Central  and  the  Standard  had 
begun  preparing  a  new  adjustment,  and  the  papers  for 
this  were  ready  to  be  signed  on  October  17,  with  those  trans- 
ferring the  pipe-line  property.  Never  had  there  been  an 
arrangement  which  gathered  ujf  so  completely  the  oil  outlets, 
for  now  the  Baltimore  and  Ohio  road  came  into  a  pool  for  the 
first  time.  Mr.  Gajxett  had  always  refused  the  advances  of 
the  other  roads,«  |hyhen  he  saw  that  the  Columbia  Con- 
duit Line,  his  cl  r  feeder,  was  sure  to  fall  into  Standard 
hands;  when  he  blpin  to  suspect  the  Baltimore  refiners  were 
going  into  the  combination,  to  realised  that  if  he  expected 
to  keep  an  oil  traffic  he  must  join  the  other  roads.  The  new 
pool,  therefore,  was  between  four  roads.  Sixty-three  per  cent, 
of  the  oil  traffic  was  conceded  to  New  York,  and  of  the  sixty- 
three  per  cent,  going  there  the  Pennsylvania  road  was  to  have 
twenty-one  per  cent.  Thirty-seven  per  cent,  of  the  traffic  was 
to  go  to  Philadelphia  and  Baltimore,  and  of  this  thirty-seven 
per  cent,  the  Pennsylvania  had  twenty-six  per  cent.  The  Stand- 
ard guaranteed  the  road  not  less  than  2,000,000  barrels  a  year, 
and  if  it  failed  to  send  that  much  over  the  road  it  was  to  pay 

[195] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

it  a  sum  equal  to  the  profits  it  would  have  realised  upon  the 
quantity  in  deficit.  In  return  for  this  guarantee  of  quantity 
the  Standard  was  to  pay  such  rates  as  might  be  fixed  from  time 
to  time  by  the  four  trunk  lines  (which  rates  it  was  under- 
stood should  be  so  fixed  by  the  trunk  lines  as  to  place 
them  on  a  parity  as  to  cost  of  transportation  by  competing 
lines),  and  it  was  to  receive  weekly  a  commission  of  ten 
per  cent,  on  its  shipments  it  controlled.*  No  commission 
was  to  be  allowed  any  other  shipper  unless  he  should 
guarantee  and  furnish  such  a  quantity  of  oil  that  after  de- 
ducting any  commission  allowed,  the  road  realised  from 
it  the  same  amount  of  profits  as  it  did  from  the  Standard 
trade.  The  points  in  the  agreement  were  embodied  in  a  letter 
from  William  Rockefeller  to  Mr.  Scott.  This  letter  and 
the  answer  declaring  the  arrangement  to  be  satisfactory  to  the 
company  are  both  dated  October  iy.-\ 

Four  months  later  Mr.  Rockefeller  was  able  to  take  another 
step  of  great  advantage.  He  was  able  to  put  into  operation  the 
system  of  drawbacks  on  other  people's  shipments  which  the 
South  Improvement  Company  contracts  had  provided  for,  and 
which  up  to  this  point  he  seems  not  to  have  been  securely 
enough  placed  to  demand.  There  were  no  bones  about  the 
request  now.  Mr.  O'Day,  the  general  manager  of  the  Ameri- 
can Transfer  Company,  a  pipe-line  principally  in  Clarion 
County,  Pennsylvania,  which,  including  its  branches,  was 
from  eighty  to  ioo  miles  in  length,  a  company  now  one 
of  the  constituents  of  the  United  Pipe  Line,  wrote  to  Mr. 
Cassatt: 

"  I  here  repeat  what  I  once  stated  to  you,  and  which  I  wish  you  to  receive  and  treat 
as  strictly  confidential,  that  we  have  been  for  many  months  receiving  from  the  New 

*  See  Appendix,  Number  27.  Mr.  Flagler's  explanation  of  the  commission  of  ten 
per  cent,  allowed  the  Standard  Oil  Company  in  1877. 

t  See  Appendix,  Number  28.  Correspondence  between  William  Rockefeller  and 
Mr.  Scott  in  October,  1877. 

[196] 


STRENGTHENING  THE  FOUNDATIONS 

York  Central  and  Erie  Railroads  certain  sums  of  money,  in  no  instance  less  than  twenty 
cents  per  barrel  on  every  barrel  of  crude  oil  carried  by  each  of  these  roads.'*  Continuing, 
Mr.  O'Day  says:  "Co-operating  as  we  are  doing  with  the  Standard  Oil  Company  and 
the  trunk  lines  in  every  effort  to  secure  for  the  railroads  paying  rates  of  freight  on 
the  oil  they  carry,  I  am  constrained  to  say  to  you  that  in  justice  to  the  interests  I 
represent  we  should  receive  from  your  company  at  least  twenty  cents  on  each  barrel 
of  crude  oil  you  transport.  ...  In  submitting  this  proposition  I  find  that  I  should 
ask  you  to  let  this  date  from  November  I,  1877,  but  I  am  willing  to  accept  as  a 
compromise  (which  is  to  be  regarded  as  strictly  a  private  one  between  your  company 
and  ours)  the  payment  by  you  of  twenty  cents  per  barrel  on  all  crude  oil  shipments 
commencing  with  February  1,  1878."* 

Mr.  Cassatt  complied  with  Mr.  O'Day's  request.  In  a  letter 
to  the  comptroller  of  the  road  he  said  that  he  had  agreed  to 
allow  this  commission  after  having  seen  the  receipted  bills, 
showing  that  the  New  York  Central  allowed  them  a  commis- 
sion of  thirty-five  cents  a  barrel,  and  the  Erie  Railroad  a 
commission  of  twenty  cents  a  barrel  on  Bradford  oil  and  thirty 
cents  on  all  other  oils.  Thus  the  Standard  Oil  Company, 
through  the  American  Transfer  Company,  received,  in  addi- 
tion to  rebates  on  its  own  shipments,  from  twenty  to  thirty- 
five  cents  drawback  a  barrel  on  all  crude  oil  which  was  sent 
over  the  trunk  lines  by  other  people  as  well  as  by  itself. t 

The  effect  of  this  new  concentration  of  power  was  imme- 
diate in  all  the  refining  centres  of  the  country.  Most  of  the 
Baltimore  refiners,  some  eight  in  number,  which  up  to  this 
time  had  remained  independent,  seeing  themselves  in  danger 
of  losing  their  oil  supply,  were  united  at  the  end  of  1877  into 
the  Baltimore  United  Oil  Company,  with  J.  N.  Camden  at 
their  head.  Mr.  Camden  was  president  of  the  Camden  Con- 
solidated Company  of  Parkersburg,  West  Virginia,  a  con- 
cern already  in  the  Standard  alliance,  and  he  and  his  partners 
held  the  majority  stock  in  the  Baltimore  concern.  The  method 

*  See  Appendix,  Number  29.   Correspondence  between  Mr.  O'Day  and  Mr.  Cassatt. 
f  See  Appendix,  Number  30.     Henry  M.  Flagler's  testimony  on  the  rebate  paid  to 
American  Transfer  Company. 

[  197] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

of  reaching  the  Baltimore  independents  who  looked  with  dis- 
like or  fear  on  the  Standard  was  a  familiar  one:  An  officer 
of  one  of  the  concerns  owned  by  the  Standard  Oil  Company 
would  approach  the  outsider  who  was  feeling  the  pressure 
and  propose  a  sale  or  a  lease  to  himself  personally.  It  was 
an  escape,  and  it  usually  ended  in  the  complete  absorption  of 
the  plant  by  the  Standard.  A  few  of  the  Baltimore  interests 
refused  to  go  into  the  Baltimore  United  Oil  Company.  Among 
them  was  a  woman,  a  widow,  Mrs.  Sylvia  C.  Hunt,  who  had 
conducted  a  successful  refinery  there  for  several  years,  and 
whose  business  ability  and  energy  had  been  the  admiration  of 
all  those  with  whom  she  had  come  in  contact.  Her  interests 
had  been  particularly  cherished  by  the  Empire  Line,  "Mrs. 
Hunt's  cars"  being  given  precedence  many  a  time  by  agents 
at  Titusville  or  other  shipping  points  who  knew  her  story. 
In  the  summer  of  1877  her  works  burned  out.  With  a  cour- 
age which  was  generally  commented  on  at  the  time  Mrs. 
Hunt  at  once  rebuilt  and  in  less  than  six  months  had  her 
plant  in  running  order.  Then  came  the  fall  of  the  Empire 
Transportation  Company,  the  sale  of  the  Columbia  Conduit 
Company,  and  the  entrance  of  the  Baltimore  and  Ohio  into  the 
Oil  Pool.  Every  refiner  in  Baltimore  knew  what  that  meant, 
and  the  wise  sold  when  Mr.  Camden  proposed  it.  Mrs.  Hunt, 
however,  did  not  want  to  sell.  She  distrusted  the  new  company. 
Finally  with  many  misgivings  she  leased  for  five  years  at 
$5,000  a  year.  It  was  less  than  half  she  had  been  making,  so  she 
claimed,  and  among  her  old  friends  there  was  much  indigna- 
tion. Colonel  Potts,  indeed,  in  telling  her  story  in  his  "Brief 
History  of  the  Standard  Oil  Company,"  said:  "It  could  fairly 
have  been  expected  that  something  of  chivalrous  feeling  would 
be  inspired  by  the  sight  of  this  indomitable  spirit  who  had 
wrought  so  noble  a  work  against  such  great  odds.  But  though 
fine  sentiments  and  generous  words  find  frequent  exodus  from 
the  lips  of  the  Standard  managers,  they  are  never  seconded 

[198] 


STRENGTHENING  THE  FOUNDATIONS 

by  generous  deeds.  They  crushed  her  business  and  her  spirit 
as  remorselessly  as  they  would  have  killed  a  dog."  These  are 
bitter  words  written  when  Colonel  Potts  was  still  smarting 
from  his  defeat.  They  were  written,  too,  without  reflection 
that  Mrs.  Hunt,  if  allowed  to  have  all  the  oil  she  wanted, 
allowed  equal  rates,  allowed  to  use  her  ability  and  experi- 
ence, allowed  freedom  to  sell  in  the  markets  she  had  built  up, 
would  undoubtedly  have  increased  her  business.  She  would 
have  profited  by  the  high  prices  of  refined  oil  which  Mr. 
Rockefeller  was  taking  all  this  trouble  to  secure.  She  might 
have  grown  a  formidable  competitor  even,  and  disturbed  the 
steadiness  of  the  working  of  the  great  machine.  Colonel  Potts 
forgot  that  if  the  Great  Purpose  was  realised  nobody  must 
do  business  except  under  Mr.  Rockefeller's  control. 

In  New  York  City  the  new  tariff  and  pooling  arrange- 
ments caused  the  greatest  uneasiness,  for  here  was  the  largest 
group  of  prosperous  independent  refiners.  They  had  all  allied 
themselves  with  the  Empire  Transportation  Company  in 
the  spring  of  1877  when  its  fight  with  the  Standard  had  begun, 
but  they  had  been  dropped  immediately  when  peace  negoti- 
ations were  begun,  and  a  letter  of  remonstrance  they  sent  Mr. 
Scott  at  the  time  was  never  answered.*  The  experiences  of 
several  of  these  independents  have  been  recorded  in  court 
testimony.  One  or  two  will  suffice  here.  For  instance,  among 
the  Eastern  refiners  was  the  firm  of  Denslow  and  Bush;  their 
works  were  located  in  South  Brooklyn.  They  had  begun  in 
a  very  small  way  in  1870,  and  by  1879  were  doing  a  business 
of  nearly  1,000  barrels  of  crude  a  day.  They  had  trans- 
ported nearly  all  their  oil  by  the  Empire  Line.  After  that 
line  went  out  of  business  in  October,  1877,  the  contract  with 
Denslow  and  Bush  was  transferred  to  the  Pennsylvania  Rail- 
road Company.  This  contract  terminated  on  the  first  day  of 

*  See  Appendix,  Number  31.     Letter  to  President  Scott  of  the  Pennsylvania  Rail- 
road from  B.  B.  Campbell  and  E.  G.  Patterson. 

[  199] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

May,  1878.  Some  time  in  March  they  received  formal  notice 
of  its  expiration,  and  solicited  an  interview  with  the  officers 
of  the  Pennsylvania  Railroad  in  order  to  make  some  arrange- 
ments for  the  further  transportation  of  their  oil.  Mr.  Cassatt 
named  New  York.  The  meeting  was  held  at  Mr.  Denslow's 
office,  123  Pearl  Street.  Besides  Mr.  Bush,  there  were  present 
to  meet  Mr.  Cassatt,  Messrs.  Lombard,  Gregory,  King,  H.  C. 
Ohlen,  and  C.  C.  Burke,  all  independents.  When  Mr.  Bush 
was  under  examination  in  the  suit  against  the  Pennsylvania 
Railroad  in  1879  he  gave  an  account  of  what  happened  at  this 
interview : 

"We  asked  Mr.  Cassatt  what  rate  of  freight  we  should  have  after  the  expiration  of 
these  contracts,  whether  we  should  have  as  low  a  rate  of  freight  as  the  Standard  Oil 
Company  or  any  other  shipper?  He  said,  'No/  We  asked  why.  'Well,  in  the  first 
place,  you  can't  ship  as  much  oil  as  the  Standard  Oil  Company.'  'Well,  if  we  could 
ship  as  much  oil' — I  think  Mr.  Lombard  put  this  question — 'would  we  then  have 
the  same  rate?'  He  said, 'No.'  'Why?'  'Why,  you  could  not  keep  the  road  satis- 
fied; it  would  make  trouble.'  And  he  remarked  in  connection  with  that,  that  the 
Standard  Oil  Company  was  the  only  party  that  could  keep  the  roads  harmonised  or 
satisfied.  He  intimated,  I  believe,  that  each  road  had  a  certain  percentage  of  the 
oil  business,  and  they  could  divide  that  up  and  give  each  road  its  proportion,  and 
in  that  way  keep  harmony,  which  we  could  not  do.  Right  after  that  he  made  the 
remark  that  he  thought  that  we  ought  to  fix  it  up  with  the  Standard;  we  ought  to  do 
something  so  as  to  all  go  on  and  make  some  money,  and  I  think  we  gave  him  very 
distinctly  to  understand  that  we  didn't  propose  to  enter  into  any  'fix  up'  where 
we  would  lose  our  identity,  or  sell  out,  or  be  under  anybody  else's  thumb.  I  believe 
that  he  went  so  far  as  to  say  that  he  would  see  the  Standard,  and  do  everything  he 
could  to  bring  that  thing  about.  We  told  him  very  clearly  that  we  didn't  want  any 
interference  in  that  direction,  and  if  there  was  anything  to  be  done,  we  thought  we 
were  quite  capable  of  doing  it.  The  interview  perhaps  lasted  an  hour.  There  was 
a  great  deal  of  talk  of  one  kind  and  another,  but  this  is,  I  think,  the  substance.  This 
interview  was  in  March,  1878, 1  think. 

"  Another  interview  at  which  I  was  present  was  either  in  June  or  July.  Mr.  Scott 
was  present.  This  interview  was  brought  about  because  we  had  been  deprived,  as  we 
believed,  of  getting  a  sufficient  number  of  cars  we  were  entitled  to.  We  had  telegraphed 
or  written  to  Mr.  Cassatt — at  least,  Mr.  Ohlen,  our  agent,  had,  on  several  occasions, 
and  tried  to  get  an  interview,  and  finally  this  one  was  appointed,  at  which  Mr.  Scott 

[  200  ] 


STRENGTHENING  THE  FOUNDATIONS 

would  be  present.  When  we  arrived  there  we  found  Mr.  Brundred,  from  Oil  City; 
and  Mr.  Scott  went  on  to  state  that  he  thought  that  we  were  receiving  our  fair  propor- 
tion of  cars.  They  tried  to  make  us  believe  and  feel,  I  suppose,  that  we  were  getting 
our  due  proportion,  when  for  some  considerable  time  previous  to  this  we  had  not  been 
able  to  do  any  business  in  advance;  we  could  only  do  business  from  hand  to  mouth. 
We  could  not  sell  any  refined  oil  unless  we  absolutely  had  the  crude  oil  in  our  posses- 
sion in  New  York,  and  Mr.  Lombard,  one  of  our  number,  had  sold  a  cargo  of  crude 
oil,  I  think,  of  9,000  barrels,  and  Denslow  and  Bush  absolutely  stopped  their  refinery 
for  three  weeks  consequently,  in  order  to  let  theiroil  goto  Ayres  and  Lombard  to  finish 
their  vessel,  because  they  would  only  get  three  or  four  cars  a  day;  and  we  stopped  our 
place  for  three  weeks  to  give  them  our  crude  oil,  all  we  could  give — our  proportion — 
in  order  to  lift  them  out  and  get  their  vessel  cleared.  After  trying  to  impress  upon  us 
that  we  were  getting  our  proportion  of  cars,  we  asked  Mr.  Scott  substantially  the 
same  question  we  asked  Mr.  Cassatt  in  New  York,  whether  we  could  have,  if  there 
was  any  means  by  which  we  could  have,  the  same  rate  of  freight  as  other  shippers 
got,  and  he  said  flatly,  'No';  and  we  asked  him  then  if  we  shipped  the  same  amount 
of  oil  as  the  Standard,  and  he  said,  'No/  and  gave  the  same  reasons  Mr.  Cassatt 
had  in  New  York,  that  the  Standard  Oil  Company  were  the  only  parties  that  could 
keep  peace  among  the  roads.  We  stated  to  Mr.  Scott  that  we  would  like  to  know 
to  what  extent  we  would  be  discriminated  against,  because  we  wanted  to  know  what 
disadvantage  we  would  have  to  work  under.  And  we  went  away  very  much  dissatisfied. 
All  the  information  we  got  on  that  point  was  from  Mr.  Cassatt  in  New  York,  when 
he  stated  that  the  discrimination  would  be  larger  on  a  high  rate  of  freight  than  on  a 
low  rate  of  freight,  which  led  us  to  infer  that  it  was  a  percentage  discrimination.  That 
is  all  the  point  that  I  recollect  we  ever  got  as  to  the  amount  of  the  commission.  We 
told  Mr.  Scott  that  if  they  hadn't  sufficient  cars  on  their  road  we  would  like  to  put  some 
on,  and  he  told  us  flatly  that  they  had  just  bought  out  one  line  and  they  would  not 
allow  another  one  to  be  put  on;  that  if  they  hadn't  cars  enough  they  would  build  them. 
He  seemed  to  show  considerable  feeling  that  afternoon,  and  he  said  :  'Well,  you  have 
cost  us  in  fighting  for  you  now  a  million  dollars'  (or  a  million  and  a  half,  something 
like  that — a  very  large  sum),  'and  we  don't  propose  to  go  into  another  fight.'  "  * 

Strange  as  it  may  seem  there  were  not  only  men  in  the  refin- 
ing business  who  were  willing  to  fight  under  these  conditions, 
there  were  men  among  the  very  ones  who  had  succumbed  at 
the  opening  of  the  Standard's  onslaught  who  were  ready  to 
try  the  business   again.   Among  these  was  William   Hark- 

*  Commonwealth  of  Pennsylvania  vs.  Pennsylvania  Railroad,  United  Pipe  Lines, 
etc. 

[20I] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

ness,  whose  experience  up  to  1876  was  related  in  the  preceding 
chapter.  Mr.  Harkness's  next  experience  in  the  oil  business 
was  related  to  the  same  committee  as  that  already  mentioned: 

"When  I  was  compelled  to  succumb,"  he  said,  "I  thought  it  was  only  tempo-   I 
rarily;  that  the  time  would  come  when  I  could  go  into  the  business  I  was  devoted  to.    j| 
We  systematised  all  our  accounts  and  knew  where  the  weak  points  were.  I  was  in    1 
love  with  the  business.  I  selected  a  site  near  three  railroads  and  the  river.  I  took   I 
a  run  across  the  water — I  was  tired  and  discouraged  and  used  up  in  1876,  and  was   j 
gone  three  or  four  months.  I  came  back  refreshed  and  ready  for  work,  and  had  the   j 
plans  and  specifications  and  estimates  made  for  a  refinery  that  would  handle  10,000   I 
barrels  of  oil  a  day,  right  on  this  hundred  acres  of  land.  I  believed  the  time  had   I 
arrived  when  the  Pennsylvania  Railroad  would  see  their  true  interest  as  common   I 
carriers,  and  the  interest  of  their  stockholders  and  the  business  interest  of  the  city  I 
of  Philadelphia,  and  I  took  those  plans,  specifications,  and  estimates,  and  I  called   I 
on  Mr.  Roberts,  president  of  the  Pennsylvania  Railroad  Company.  I  had  consulted  I 
one  or  two  other  gentlemen,  whose  advice  was  worth  having,  whether  it  would  be  ] 
worth  my  while  to  go  to  see  President  Roberts.  I  went  there  and  laid  the  plans  before  I 
him,  and  told  him  I  wanted  to  build  a  refinery  of  10,000  barrels  capacity  a  day.  I 
was  almost  on  my  knees  begging  him  to  allow  me  to  do  that.  He  said;  'What  is  it 
you  want?'  I  said;  'I  simply  ask  to  be  put  upon  an  equality  with  everybody  else, 
and  especially  the  Standard  Oil  Company.'     I  said;  'I  want  you  to  agree  with  me 
that  you  will  give  me  transportation  of  crude  oil  as  low  as  you  give  it  to  the  Standard 
Oil  Company  or  anybody  else  for  ten  years,  and  then  I  will  give  you  a  written  assurance 
that  I  will  do  this  refining  of  10,000  barrels  of  oil  a  day  for  ten  years.'  I  asked  him 
if  that  was  not  an  honest  position  for  us  to  be  in;  I,  as  a  manufacturer,  and  he,  the 
president  of  a  railroad.  Mr.  Roberts  said  there  was  a  great  deal  of  force  in  what  I 
said,  but  he  could  not  go  into  any  written  assurance.  He  said  he  would  not  go  into  any 
such  agreement,  and  I  saw  Mr.  Cassatt.  He  said  in  his  frank  way;  'That  is  not  prac- 
ticable, and  you  know  the  reason  why.'" 

As  this  work  of  absorption  went  on  steadily,  persistently, 
the  superstitious  fear  of  resistance  to  proposals  to  lease  or 
sell  which  came  from  parties  known  or  suspected  to  be  work- 
ing in  harmony  with  the  Standard  Oil  Company,  which  had 
been  strong  in  1875,  grew  almost  insuperable.  In  Cleveland 
this  was  particularly  true.  A  proposal  from  Mr.  Rockefeller 
was  certainly  regarded  popularly  as  little  better  than  a  com- 
mand to  "stand  and  deliver."  "The  coal  oil  business  belongs 

[  2°2  ] 


STRENGTHENING  THE  FOUNDATIONS 

to  us,"  Mr.  Rockefeller  had  told  Mr.  Morehouse.  "We  have 
facilities;  we  must  have  it.  Any  concern  that  starts  in  business 
we  have  sufficient  money  laid  aside  to  wipe  out"* — and  peo- 
ple believed  him!  The  feeling  is  admirably  shown  in  a  remark- 
able case  still  quoted  in  Cleveland — and  which  belongs  to 
the  same  period  as  the  foregoing  cases,  1878 — a  case  which 
took  the  deeper  hold  on  the  public  sympathy  because  the 
contestant  was  a  woman,  the  widow  of  one  of  the  first  refiners 
of  the  town,  a  Mr.  B- ,  who  had  begun  refining  in  Cleve- 
land in  i860.  Mr.  B 's  principal  business  was  the  manu- 
facture of  lubricating  oil.  Now  at  the  start  the  Standard 
Oil  Company  handled  only  illuminating  oil,  and  accordingly 

a  contract  was  made  between  the  two  parties  that  Mr.  B 

should  sell  to  Mr.  Rockefeller  his  refined  oil,  and  that  the 
Standard  Oil  Company  should  let  the  lubricating  business 
in  Cleveland  alone.  This  was  the  status  when  in  1874  Mr. 

B died.  What  happened  afterwards  has  been  told  in  full 

in  affidavits  made  in  i88o,t  and  they  shall  tell  the  story;  the 
only  change  made  in  the  documents  being  to  transfer  them 
for  the  sake  of  clarity  from  the  legal  third  person  to  the 
first,  and  to  condense  them  on  account  of  space. 

Mrs.  B -s  story  as  told  in  her  affidavit  is  as  follows: 

"  My  husband  having  contracted  a  debt  not  long  prior  to  his  death  for  the  first  time 
in  his  life,  I,  for  the  interest  of  my  fatherless  children,  as  well  as  myself,  thought  it 
my  duty  to  endeavour  to  continue  the  business,  and  accordingly  took  $92,000  of  the 

stock  of  the  B Oil  Company  and  afterwards  reduced  it  to  $72,000  or  $75,000, 

the  whole  stock  of  the  company  being  $100,000,  and  continued  business  from  that 
time  until  November,   1878,  making  handsome  profits  out  of  the  business  during 

perhaps  the  hardest  years  of  the  time  since  Mr.  B had  commenced.  Some  time 

in  November,  1878,  the  Standard  Oil  Company  sent  a  man  to  me  by  the  name  of 
Peter  S.  Jennings,  who  had  been  engaged  in  the  refining  business  and  had  sold  out 

*  Testimony  of  Charles  T.  Morehouse  before  the  Special  Committee  on  Railroads, 
New  York  Assembly,  1879. 

t  In  the  case  of  the  Standard  Oil  Company  vs.  William  C.  Scofield,  et  al.,  in  the 
Court  of  Common  Pleas,  Cuyahoga  County,  Ohio. 

[203] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

to  the  Standard  Oil  Company.  I  told  Mr.  Jennings  that  I  would  carry  on  no  negotia- 
tions with  him  whatever,  but  that  if  the  Standard  Oil  Company  desired  to  buy  my 
stock  I  must  transact  the  business  with  its  principal  officer,  Mr.  Rockefeller.  Mr. 
Jennings,  as  representing  the  Standard  Oil  Company,  told  me  that  the  president  of  the 
company,  Mr.  Rockefeller,  said  that  said  company  would  control  the  refining  business, 
and  that  he  hoped  it  could  be  done  in  one  or  two  years;  but  if  not,  it  would  be  done, 
anyway,  if  it  took  ten  years  to  do  it. 

"After  two  or  three  days'  delay  Mr.  Rockefeller  called  upon  me  at  my  residence 
to  talk  over  the  negotiation  with  regard  to  the  purchase  of  my  stock.  I  told  Mr. 

Rockefeller  that  I  realised  the  fact  that  the  B Oil  Company  was  entirely  in  the 

power  of  the  Standard  Oil  Company,  and  that  all  I  could  do  would  be  to  appeal  to 
his  honour  as  a  gentleman  and  to  his  sympathy  to  do  with  me  the  best  that  he  could; 
and  I  begged  of  him  to  consider  his  wife  in  my  position — that  I  had  been  left  with 
this  business  and  with  my  fatherless  children,  and  with  a  large  indebtedness  that  Mr. 

B had  just  contracted  for  the  first  time  in  his  life;  that  I  felt  that  I  could  not  do 

without  the  income  arising  from  this  business,  and  that  I  had  taken  it  up  and  gone  on 
and  been  successful,  and  I  was  left  with  it  in  the  hardest  years  since  my  husband 
commenced  the  business.  He  said  he  was  aware  of  what  I  had  done,  and  that  his  wife 
could  never  have  accomplished  so  much.  I  called  his  attention  to  the  contract  that 
my  husband  had  made  with  him  in  relation  to  carbon  oil,  whereby  the  Standard  Oil 
Company  agreed  not  to  touch  the  lubricating  branch  of  the  trade  carried  on  by  my 
husband,  and  reminded  him  that  I  had  held  to  that  contract  rigidly,  at  a  great  loss 

to  the  B Oil  Company,  but  did  so  because  I  regarded  it  a  matter  of  honour  to 

live  up  to  it.  I  told  him  that  I  had  become  alarmed  because  the  Standard  Oil  Company 
was  getting  control  of  all  the  refineries  in  the  country,  and  that  I  feared  that  the  said 
Standard  Oil  Company  would  go  into  the  lubricating  trade,  and  reminded  him  that 
he  had  sent  me  word  that  the  Standard  Oil  Company  would  not  interfere  with  that 
branch  of  the  trade.  He  promised,  with  tears  in  his  eyes,  that  he  would  stand  by  me 
in  this  transaction,  and  that  I  should  not  be  wronged;  and  he  told  me  that,  in  case  the 
sale  was  made,  I  might  retain  whatever  amount  of  the  stock  of  the  B Oil  Com- 
pany I  desired,  his  object  appearing  to  be  only  to  get  the  controlling  stock  of  the  com- 
pany. He  said  that  while  the  negotiations  were  pending  he  would  come  and  see  me, 
and  I  thought  that  his  feelings  were  such  on  the  subject  that  I  could  trust  him  and 
that  he  would  deal  honourably  by  me. 

"  Seeing  that  I  was  compelled  to  sell  out,  I  wanted  the  Standard  Oil  Company  to 
make  me  a  proposition,  and  endeavoured  to  get  them  to  do  so,  but  they  would  not 

make  a  proposition.    I  then  made  a  proposition  that  the  whole  stock  of  the  B Oil 

Company  with  accrued  dividends  should  be  sold  to  said  Standard  Oil  Company  for 
$200,000,  which  was,  in  fact,  much  below  what  the  stock  ought  to  have  been  sold  for; 
but  they  ridiculed  the  amount,  and  at  last  offered  me  only  $79,000,  not  including 

[204] 


STRENGTHENING  THE  FOUNDATIONS 

accounts,  and  required   :hat   each  stockholder  in   the  B Oil  Company  should 

enter  into  a  bond  that  within  the  period  of  ten  years  he  or  she  would  not  directly  or 
indirectly  engage  in  or  in  any  way  be  concerned  in  the  refining,  manufacturing,  pro- 
ducing, piping,  or  dealing  in  petroleum  or  in  any  of  its  products  within  the  county 
of  Cuyahoga  and  state  of  Ohio,  nor  at  any  other  place  whatever. 

"Seeing  that  the  property  had  to  go,  I  asked  that  I  might,  according  to  the  under- 
standing with  the  president  of  the  company,  retain  $15,000  of  my  stock,  but  the  reply 
to  this  request  was;  'No  outsiders  can  have  any  interest  in  this  concern;  the  Standard 
Oil  Company  has  "dallied"  as  long  as  it  will  over  this  matter;  it  must  be  settled  up 
to-day  or  go,'  and  they  insisted  upon  my  signing  the  bond  above  referred  to. 

"The  promises  made  by  Mr.  Rockefeller,  president  of  the  Standard  Oil  Company, 
were  none  of  them  fulfilled;  he  neither  allowed  me  to  retain  any  portion  of  my  stock, 
nor  did  he  in  any  way  assist  me  in  my  negotiations  for  the  sale  of  my  stock;  but,  on 
the  contrary,  was  largely  instrumental  in  my  being  obliged  to  sell  the  property  much 
below  its  true  value,  and  requiring  me  to  enter  into  the  oppressive  bond  above 
referred  to. 

"After  the  arrangements  for  the  sale  of  the  refinery  and  of  my  stock  were  fully  com- 
pleted and  the  property  had  been  sold  by  myself  and  the  other  stockholders,  and 
after  I  had  made  arrangements  for  the  disposition  of  my  money,  I  received  a  note 
from  Mr.  Rockefeller,  in  reply  to  one  that  I  had  written  to  him  threatening  to  make 
the  transaction  public,  saying  that  he  would  give  me  back  the  business  as  it  stood, 
or  that  I  might  retain  stock  if  I  wished  to,  but  this  was  after  the  entire  transaction 
was  closed,  and  such  arrangements  had  been  made  for  my  money  that  I  could  not 
then  conveniently  enter  into  it;  and  I  was  so  indignant  over  the  offer  being  made  at 
that  late  day,  after  my  request  for  the  stock  having  been  made  at  the  proper  time, 
that  I  threw  the  letter  into  the  fire  and  paid  no  further  attention  to  it."* 

The  letter  which  Mrs.  B destroyed  was  included  in 

the  affidavit  in  which  Mr.  Rockefeller  answered  Mrs.  B 's 

statement.  It  reads: 

"November  13,  1878.  Dear  Madam:  I  have  held  your  note  of  nth  inst.,  received 
yesterday,  until  to-day,  as  I  wished  to  thoroughly  review  every  point  connected  with 

the  negotiations  for  the  purchase  of  the  stock  of  the  B Oil  Company,  to  satisfy 

myself  as  to  whether  I  had  unwittingly  done  anything  whereby  you  could  have  any 

*  Coupled  with  Mrs.  B 's  affidavit  was  one  of  the  company's  bookkeeper's 

testifying  that  the  business  had  been  paying  an  annual  net  income  of  #30,000  to  #40,000 
when  the  sale  to  the  Standard  was  made  for  #79,000,  and  another  from  the  cashier, 

who  had  been  present  at  most  of  the  interviews  between  Mrs.  B and  the  Standard 

agents,  and  who  corroborates  her  statements  in  every  particular. 

[205] 


THE  HISTORY  OF  THE  STANDARD  (  IL  COMPANY 

right  to  feel  injured.  It  is  true  that  in  the  interview  I  had  with  you  I  suggested  that 

if  you  desired  to  do  so,  you  could  retain  an  interest  in  the  business  of  the  B Oil 

Company,  by  keeping  some  number  of  its  shares,  and  then  I  understood  you  to  say 
that  if  you  sold  out  you  wished  to  go  entirely  out  of  the  business.  That  being  my 
understanding,  our  arrangements  were  made  in  case  you  concluded  to  make  the  sale  that 
precluded  any  other  interests  being  represented,  and  therefore,  when  you  did  make 
the  inquiry  as  to  your  taking  some  of  the  stock,  our  answer  was  given  in  accordance 
with  the  facts  noted  above,  but  not  at  all  in  the  spirit  in  which  you  refer  to  the  refusal 
in  your  note.  In  regard  to  the  reference  that  you  make  as  to  my  permitting  the  business 

of  the  B Oil  Company  to  be  taken  from  you,  I  say  that  in  this,  as  all  else  that  you 

have  written  in  your  letter  of  nth  inst.,  you  do  me  most  grievous  wrong.  It  was  of 

but  little  moment  to  the  interests  represented  by  me  whether  the  business  of  the  B 

Oil  Company  was  purchased  or  not.  I  believe  that  it  was  for  your  interest  to  make  the 
sale,  and  am  entirely  candid  in  this  statement,  and  beg  to  call  your  attention  to  the  time, 
some  two  years  ago,  when  you  consulted  Mr.  Flagler  and  myself  as  to  selling  out 
your  interests  to  Mr.  Rose,  at  which  time  you  were  desirous  of  selling  at  considerably 
less  price,  and  upon  time,  than  you  have  now  received  in  cash,  and  which  sale  you 
would  have  been  glad  to  have  closed  if  you  could  have  obtained  satisfactory  security 
for  the  deferred  payments.  As  to  the  price  paid  for  the  property,  it  is  certainly  three 
times  greater  than  the  cost  at  which  we  could  construct  equal  or  better  facilities;  but 
wishing  to  take  a  liberal  view  of  it,  I  urged  the  proposal  of  paying  the  #60,000,  which 
was  thought  much  too  high  by  some  of  our  parties.  I  believe  that  if  you  would  recon- 
sider what  you  have  written  in  your  letter,  to  which  this  is  a  reply,  you  must  admit 
having  done  me  great  injustice,  and  I  am  satisfied  to  await  upon  innate  sense  of  right 
for  such  admission.  However,  in  view  of  what  seems  your  present  feelings,  I  now  offer 
to  restore  to  you  the  purchase  made  by  us,  you  simply  returning  the  amount  of  money 
which  we  have  invested  and  leaving  us  as  though  no  purchase  had  been  made.  Should 
you  not  desire  to  accept  this  proposal,  I  offer  to  you  one  hundred,  two  hundred,  or 
three  hundred  shares  of  the  stock  at  the  same  price  that  we  paid  for  the  same,  with 
this  addition,  that  we  keep  the  property  we  are  under  engagement  to  pay  into  the 

treasury  of  the  B Oil  Company,  an  amount  which,  added  to  the  amount  already 

paid,  would  make  a  total  of  #100,000,  and  thereby  make  the  shares  #100  each. 

"That  you  may  not  be  compelled  to  hastily  come  to  conclusion,  I  will  leave  open 
for  three  days  these  propositions  for  your  acceptance  or  declination,  and  in  the  mean- 
time believe  me,  Yours  very  truly, 

"  John  D.  Rockefeller." 

Mr.  Rockefeller  says  further  in  the  affidavit  from  which 
this  letter  is  drawn:  "It  is  not  true  that  I  made  any  promises 
that  I  did  not  keep  in  the  letter  and  spirit,  and  it  is  not  true 

[206] 


STRENGTHENING  THE  FOUNDATIONS 

that  I  was  instrumental  to  any  degree  in  her  being  obliged  to 
sell  the  property  much  below  its  true  value,  and  I  aver  that 
she  was  not  obliged  to  sell  out,  and  that  such  was  a  voluntary 
one  upon  her  part  and  for  a  sum  far  in  excess  of  its  value; 
and  that  the  construction  which  was  purchased  of  her  could 
be  replaced  for  a  sum  not  exceeding  $20,000."  * 

It  is  probably  true,  as  Mr.  Rockefeller  states,  that  he  could 

have  reproduced  Mrs.  B 's  plant  for  $20,000;  but  the 

plant  was  but  a  small  part  of  her  assets.  She  owned  one  of  the 
oldest  lubricating  oil  refineries  in  the  country,  one  with  an 
enviable  reputation  for  good  work  and  fair  dealing,  and  with 
a  trade  that  had  been  paying  an  annual  net  income  of  from 
$30,000  to  $40,000.  It  was  this  income  for  which  Mr.  Rocke- 
feller paid  $79,000;  this  income  with  the  old  and  honourable 

name  of  the  B Oil  Company,  with  not  a  few  stills  and 

tanks  and  agitators. 

It  is  undoubtedly  true,  as  Mr.  Rockefeller  avers,  that  Mrs. 

B was  not  obliged  to  sell  out,  but  the  fate  of  those  who 

in  this  period  of  absorption  refused  to  sell  was  before  her 
eyes.  She  had  seen  the  twenty  Cleveland  refineries  fall  into 
Mr.  Rockefeller's  hands  in  1872.  She  had  watched  the  steady 
collapse  of  the  independents  in  all  the  refining  centres.  She 
had  seen  every  effort  to  preserve  an  individual  business 
thwarted.  Rightly  or  wrongly  she  had  come  to  believe  that  a 
refusal  to  sell  meant  a  fight  with  Mr.  Rockefeller,  that  a  fight 
meant  ultimately  defeat,  and  she  gave  up  her  business  to 
avoid  ruin. 

*  Mr.  Rockefellers  statements  are  supported  by  affidavits  from  several  members 
of  the  firm. 


[207] 


CHAPTER    SEVEN 
THE  CRISIS   OF   1878 

A  RISE  IN  OIL— A  BLOCKADE  IN  EXPORTS— PRODUCERS  DO  NOT  GET  THEIR 
SHARE  OF  THE  PROFITS— THEY  SECRETLY  ORGANISE  THE  PETROLEUM  PRO- 
DUCERS' UNION  AND  PROMISE  TO  SUPPORT  PROPOSED  INDEPENDENT  PIPE- 
LINES—ANOTHER INTERSTATE  COMMERCE  BILL  DEFEATED  AT  WASHINGTON 
—"IMMEDIATE  SHIPMENT  "—INDEPENDENTS  HAVE  TROUBLE  GETTING 
CARS— RIOTS  THREATENED— APPEAL  TO  GOVERNOR  HARTRANFT— SUITS 
BROUGHT  AGAINST  UNITED  PIPE-LINES,  PENNSYLVANIA  RAILROAD  AND 
OTHERS— INVESTIGATIONS  PRECIPITATED  IN  OTHER  STATES— THE  HEP- 
BURN COMMISSION  AND  THE  OHIO  INVESTIGATION— EVIDENCE  THAT  THE 
STANDARD  IS  A  CONTINUATION  OF  THE  SOUTH  IMPROVEMENT  COMPANY- 
PRODUCERS  FINALLY  DECIDE  TO  PROCEED  AGAINST  STANDARD  OFFICIALS- 
ROCKEFELLER  AND  EIGHT  OF  HIS  ASSOCIATES  INDICTED  FOR  CONSPIRACY. 

IT  was  clear  enough  by  the  opening  of  1878  that  Mr.  Rocke- 
feller need  no  longer  fear  any  serious  trouble  from  the  refin- 
ing element.  To  be  sure  there  were  scattered  concerns  still 
holding  out  and  some  of  them  doing  very  well ;  but  his  latest 
move  had  put  him  in  a  position  to  cut  off  or  at  least  seriously 
to  interfere  with  the  very  raw  material  in  which  they  worked. 
It  was  hardly  to  be  expected  after  the  defeat  of  the  Penn- 
sylvania that  any  railroad  would  be  rash  enough  to  combine 
with  even  a  strong  group  of  refiners.  As  for  independent  pipe- 
lines, there  were  so  many  ways  of  "discouraging"  their  build- 
ing that  it  did  not  seem  probable  that  any  one  would  ever  go 
far.  It  was  only  a  matter  of  time,  then,  when  all  remaining 
outside  refiners  must  come  into  his  fold  or  die.  Mr.  Rocke- 
feller's path  would  now  have  been  smooth  had  it  not  been 
for  the  oil  producers.  But  the  oil  producers,  naturally  his 

[208  ] 


THE  CRISIS  OF  1878 

enemy,  he  being  the  buyer  and  they  the  seller,  had  become 
in  the  six  years  before  Mr.  Rockefeller  had  made  himself  the 
only  gatherer  of  their  oil,  irreconcilable  opponents  of  what- 
ever he  might  do.  The  South  Improvement  Company  they 
regarded  rightly  enough  as  devised  to  control  the  price  of 
their  product,  and  that  scheme  they  wrongfully  laid  entirely 
at  Mr.  Rockefeller's  door.  Mr.  Rockefeller  had  been  only 
one  of  the  originators  of  the  South  Improvement  Company, 
but  the  fact  that  he  had  become  later  practically  its  only 
supporter,  that  he  was  the  only  one  who  had  profited  by  it, 
and  that  he  had  turned  his  Cleveland  plant  into  a  machine 
for  carrying  out  its  provisions,  had  caused  the  oil  country 
to  fix  on  him  the  entire  responsibility.  Then  the  oil  men's 
experience  with  Mr.  Rockefeller  in  1873  nad  been  unfor- 
tunate. They  charged  the  failure  of  their  alliance  to  his 
duplicity.  There  is  no  doubt  that  Mr.  Rockefeller  played  a 
shrewd  and  false  game  with  the  oil  men  in  1873,  but  the 
failure  of  their  alliance  was  their  own  fault.  They  did  not 
hold  together — they  failed  to  limit  their  production  as  they 
agreed,  they  suspected  one  another,  and  at  a  moment,  when, 
if  they  had  been  as  patient  and  wise  as  their  great  opponent 
they  would  have  had  the  game  in  their  own  hands,  and  him  at 
their  feet,  as  he  had  been  in  1872,  for  the  sake  of  immediate 
returns,  they  abandoned  some  of  the  best  features  of  their 
organisation,  and  allied  themselves  with  a  man  they  distrust- 
ed. When  that  alliance  failed  they  threw  on  Mr.  Rocke- 
feller's shoulders  a  blame  which  they  should  have  taken  on 
their  own. 

Another  very  real  cause  for  their  anxiety  and  dislike  was 
that  as  the  refiners'  alliance  progressed  the  refiners  made  a 
much  larger  share  of  the  profits  than  the  producers  thought  fair. 
The  abandoning  of  their  alliance  in  1873  had  of  course  put 
an  end  to  their  measures  for  limiting  production  and  for  hold- 
ing over-production  until  it  could  be  sold  at  the  prices  they 

[209] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

thought  profitable.  The  drill  had  gone  on  merrily  through 
1873,  1874,  and  1875,  regardless  of  consumption  or  prices. 
By  the  end  of  1874  there  were  over  three  and  a  half  million 
barrels  of  oil  in  stock,  more  than  twice  what  there  had  ever 
been  before.  Production  was  well  to  a  million  barrels  a  month 
and  prices  that  year  averaged  but  $1.15  a  barrel.  For  men 
who  considered  three  dollars  a  starvation  price  this  was  indeed 
hard  luck.  Things  looked  better  by  the  end  of  1875,  for  pro- 
duction was  falling  off.  By  March,  1876,  stocks  had  been  so 
reduced  that  there  was  strong  confidence  that  the  price  of 
crude  oil  must  advance.  By  June  the  Oil  City  Derrick  began 
to  prophesy  "three-dollar  oil"  and  to  advise  oil  men  to  hold 
crude  for  that  price.  In  August  three  dollars  was  reached  in 
the  Oil  City  exchange.  It  had  been  nearly  four  years  since  that 
price  had  been  paid  for  oil,  and  the  day  the  point  was 
reached  (August  25)  the  brokers  fairly  went  mad.  They 
jumped  on  their  chairs,  threw  up  their  hats,  beat  one  an- 
other on  the  back,  while  the  spectators  in  the  crowded  gal- 
leries, most  of  them  speculators,  yelled  in  sympathy.  Before 
six  o'clock  that  day  oil  reached  $3.1  ij4-  Nobody  thought 
of  stopping  because  it  was  supper  time.  The  exchange  was 
open  until  nearly  midnight,  prices  booming  on  to  $3.17^. 
It  seemed  like  old  times  in  the  Oil  Region — the  good  old 
flush  times  when  people  made  a  fortune  one  day  and  threw  it 
away  the  next! 

Of  course  refined  oil  went  up  steadily  with  crude.  Refined 
reached  21^  cents  in  New  York  the  day  of  this  boom  at  Oil 
City.  The  day  following  the  rise  was  one  of  the  most  exciting 
the  oil  exchange  had  ever  seen.  "Never  before,"  declared  the 
Derrick  in  its  report,  "was  so  much  business  done.  From 
early  in  the  morning  until  ten  o'clock  at  night  the  exchange 
was  crowded  by  frantic  speculators.  Their  awful  excitement 
was  clear  from  their  blanched  faces  and  wild  voices.  Fully 
800,000  barrels  of  oil  exchanged  hands  that  day,  the  advance 

[210] 


THE  CRISIS  OF  1878 

between  the  time  the  exchange  opened  and  its  close  was  over 
fifty-five  cents.  Refined  in  New  York  advanced  in  accordance 
with  the  market  on  the  creek,  closing  at  twenty-four  cents. 
This  went  on  for  several  days,  when  a  new  element  in  the 
situation  began  to  force  itself  on  the  oil  men's  attention.  One 
of  the  chief  reasons  on  which  they  based  their  confidence  in 
high  prices  for  crude  oil  was  the  fact  that  the  foreigners  were 
short  of  refined  oil.  It  was  the  custom  then,  as  now,  for  export- 
ers to  buy  their  oil  for  the  winter  European  trade  in  the  late 
summer  and  early  fall.  When  the  boom  began  the  harbour  at 
New  York  was  beginning  to  fill  up  with  ships  for  cargoes. 
But  to  the  consternation  of  the  oil  men  intent  on  keeping  up 
the  boom,  the  exporters  were  refusing  to  buy.  They  were 
declaring  the  price  to  which  refined  had  risen  to  be  out  of 
proportion  to  the  price  of  crude.  More,  they  declared  the 
latter  a  speculative  price — only  once,  they  argued,  had  it 
touched  four  dollars,  and  the  refiners  were  not  buying  at 
that  price  for  manufacture.  They  were  holding  refined  too 
high.  It  was  early  in  September  when  the  realisation  came 
upon  the  Oil  Regions  that  a  new  element  was  in  the  problem 
— a  veritable  blockade  in  exports.  As  the  days  went  on  they 
saw  that  this  was  no  temporary  affair.  They  saw  that  Mr. 
Rockefeller's  combination  was  at  last  carrying  out  just  what 
it  had  been  organised  to  do — forcing  the  price  it  wanted  for 
refined.  Day  after  day  refined  was  held  at  twenty-six  cents. 
Day  after  day  the  exporters  refused  to  buy.  It  was  not  until 
the  end  of  September,  in  fact,  that  they  began  to  yield — as  it 
was  inevitable  they  should  do,  for  the  game  was  certainly 
in  the  hands  of  the  refiners,  and  Europe  had  to  have  its  light. 
The  exporters  began  to  see  too  that  if  they  held  off  longer  they 
might  have  to  pay  higher  prices,  for  it  was  rumoured  that 
the  Standard  Combination  was  shutting  down  its  factories, 
literally  making  refined  scarce,  while  crude  oil  was  piling 
up  in  Pennsylvania! 

[an] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

With  the  yielding  of  the  exporter  exactly  what  they  feared 
occurred,  the  price  was  raised!  The  exporters  balked  again. 
The  matter  began  to  attract  public  attention.  The  New  York 
Herald  was  particularly  active  in  airing  the  situation  and 
did  not  hesitate  to  denounce  it  as  a  "Petroleum  Plot."  The 
leaders  were  interviewed,  among  them  Mr.  Rockefeller.  Mr. 
Rockefeller  still  held  to  his  theory  that  to  make  oil  dear  was 
worthy  of  public  approval.  They  had  aimed  to  control  the 
price  of  oil  in  a  perfectly  legitimate  way,  he  told  the  Herald 
reporter,  and  the  exporters  would  have  to  yield  to  their  prices. 
By  the  end  of  October  New  York  harbour  was  full  of  vessels 
— a  mute  protest  against  the  corner — and  it  was  not  until 
November  that  the  exporters  fully  gave  in  and  began  to  take 
all  the  oil  they  could  get  at  prices  asked,  which  ranged  from 
twenty-six  to  thirty- five  cents.  And  these  prices  were  held 
all  through  the  winter  of  1876-77,  up  to  February  22.  They 
were  held  regardless  of  the  price  of  crude,  f<  ,  do  their  ut- 
most, the  producers  could  not  keep  their  oil  lp  to  the  corre- 
sponding price  of  refined.  According  to  the  scale  of  relative 
prices  then  accepted,  twenty-six  cents  a  gallon  for  refined 
meant  five  dollars  a  barrel  for  crude,  yet  there  was  not  a  month 
in  the  entire  period  of  this  hold-up  that  crude  averaged  that 
price.  In  December,  when  the  average  price  of  refined  was 
29^  cents,  crude  was  but  $3.78^  a  barrel.  The  producers 
held  meetings  and  passed  resolutions,  cursed  the  refiners  and 
talked  of  building  independent  refineries,  filled  the  columns 
of  the  Derrick  with  open  letters  advocating  a  shut-down,  an 
alliance  of  their  own,  restrictive  legislation,  an  oil  men's 
railway,  and  what  was  more  to  the  point  some  of  them  sup- 
ported, with  more  or  less  fidelity,  the  efforts  to  build  up 
counter  movements  noted  in  the  last  chapter:  the  Columbia 
Conduit  Line,  the  seaboard  pipe-line,  and  especially  the 
alliance  with  the  Empire  Transportation  Company,  attempted 
in  the  spring  of  1877.  There  seemed  more  hope  in  this  last 

[212] 


WOODEN   TANKS    FOR    STORING    OIL 


I 

^J    /v~  J 

RAILROAD   TERMINAL   OF   AN   EARLY   PIPE   LINE 


1> 


1, 


THE  CRISIS  OF  1878 

combination  than  in  any  other  movement,  for  they  had  faith  in 
Colonel  Potts,  and  besides  they  were  accustomed  to  seeing  the 
Pennsylvania  Railroad  get  what  it  wanted.  The  defeat  of  the 
Pennsylvania  was  therefore  the  heavier  blow.  Indeed,  the 
news  of  the  sale  of  the  Empire  pipe-lines  to  the  Standard  was 
like  the  sounding  of  the  tocsin  in  the  angry  and  baffled  Oil 
Regions.  It  revived  the  spirit  of  1872.  But  it  was  the  spirit 
of  1872  with  new  dignity  and  a  discretion  such  as  had  never 
been  before  seen  in  the  blatant  region.  In  every  town  from 
McKean  County  southwest  to  Butler  the  oil  towns  hastened 
to  organise  themselves  into  a  secret  society.  Little  by  little 
it  came  out  that  a  Producers'  Union  had  been  organised.  From 
all  that  could  be  learned  it  looked  very  much  as  if  the  Petro- 
leum Producers'  Union  had  come  into  existence  to  do  business. 
On  November  21,  1877,  the  first  meeting  of  the  new  organisa- 
tion was  held,  "the  Petroleum  Parliament"  or  "Congress"  it 
was  called.  This  Congress,  which  met  in  Titusville,  was  com- 
posed of  172  delegates.  It  was  claimed  that  it  represented  at 
least  2,000  oil  producers,  and  not  less  than  seventy-five 
millions  in  money.  It  is  certain  it  included  the  representative 
men  of  the  Oil  Regions,  those  to  whose  daring,  hard  work, 
and  energy  the  discovery  and  development  of  the  oil  fields, 
as  they  were  known  at  that  time,  were  entirely  due. 

For  four  days  the  Congress  was  in  session,  and  it  is  a 
remarkable  comment  on  the  seriousness  with  which  it  had 
undertaken  its  work  that,  although  reporters  from  all  parts 
of  the  country  interested  in  oil  were  present,  nothing  leaked 
out.  In  December  a  second  session  of  four  days  was  held  in 
Titusville,  but  no  announcement  of  what  was  doing  was  made 
to  the  press.  Indeed,  it  was  only  as  lines  of  action  developed 
that  the  public  became  familiar  with  what  the  producers  had 

Iesolved  on  in  the  days  of  secret  session  which  they  had  held. 
Their  resolutions  had  been  eminently  wise  and  they  under- 
00k  their  support  vigorously  and  intelligently.   First  and 
[213] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

foremost  they  resolved  to  stand  by  all  efforts  to  secure  an  out- 
let to  the  seaboard  independent  of  the  Standard  and  the  allied 
railroads.  Two  enterprises  were  put  before  them  at  once.  The 
first  was  what  was  known  as  the  Equitable  Petroleum  Com- 
pany, an  organisation  started  by  one  of  the  most  resourceful 
and  active  independent  men  in  the  oil  country,  one  of  whom 
we  are  to  hear  more,  Lewis  Emery,  Jr.  This  company,  in 
which  some  200  oil  producers  in  the  Bradford  field  had 
taken  stock,  proposed  to  lay  a  pipe-line  to  Buffalo  and  to 
ship  their  oil  thence  by  the  Erie  Canal.  They  had  acquired  a 
right  of  way  to  Buffalo  and  had  capital  pledged  to  carry  out 
the  project.  The  second  enterprise  to  come  before  the  newly 
formed  union  was  much  more  ambitious.  It  was  nothing  less 
than  a  revival  of  Mr.  Harley's  enterprise  which  had  attracted 
so  much  attention  in  1876.  It  was  revived  now  by  the  three 
men  who  had  been  operating  the  Columbia  Conduit  Line 
under  a  lease — Messrs.  Benson,  McKelvy  and  Hopkins,  who 
had  been  set  free  by  the  sale  of  that  property  to  the  Standard. 
Their  experience  with  the  pipe-line  business  had  convinced 
them  it  was  one  of  the  most  lucrative  departments  of  the  oif 
industry.  They  believed  too  that  oil  could  be  pumped  over 
the  mountains,  and  no  sooner  were  they  free  than  they  took 
up  Mr.  Harley's  old  idea  and  engaged  the  same  engineer 
he  had  brought  into  the  enterprise,  General  Herman  Haupt, 
to  survey  a  route  from  Brady's  Bend  on  the  Allegheny 
River  to  Baltimore,  Maryland — a  distance  of  235  miles.  To 
both  of  these  projects  the  General  Council  of  the  Union  gave 
promise  of  support. 

The  demand  for  interstate  commerce  legislation  was  re- 
newed at  once  by  the  Union,  and  in  December  E.  G.  Patter- 
son, the  head  of  the  committee  having  the  matter  in  hand,  pre- 
pared the  first  draft  of  an  act  which  was  put  in  formal  shap< 
by  George  B.  Hibbard,  of  Buffalo,  counsel  employed  by  thi 
Union  for  this  purpose.  Mr.  Hibbard  also  prepared  a  memo- 

[214] 


THE  CRISIS  OF  1878 

randum  of  the  law  on  the  subject.  The  bill  prepared  by  Mr. 
Patterson  and  Mr.  Hibbard  was  introduced  into  the  House 
of  Representatives  in  May,  1878,  by  Lewis  F.  Watson,  whose 
home  was  in  Warren  County,  Pennsylvania.  It  was  called 
into  committee  and  came  out  as  the  Regan  bill  and  as  such 
was  passed  at  the  end  of  the  year  by  the  House,  but  only  to 
be  smothered  later  in  the  Senate.  At  the  same  time  that  the 
effort  was  going  in  Washington  for  relief  the  Legislature  of 
Pennsylvania  was  being  besieged  again  for  a  free  pipe-line 
bill  and  an  anti-discrimination  bill.  Both  of  these  projects 
failed,  and  the  committee  having  them  in  charge  said  bitterly 
in  its  report  to  the  Union:  "How  well  we  have  succeeded 
at  Harrisburg  you  all  know.  It  would  be  in  vain  for  your 
committee  to  describe  the  efforts  of  the  Council  in  this  direc- 
tion.  It  has  been  simply  a  history  of  failure  and  disgrace.  If 
it  has  taught  us  anything,  it  is  that  our  present  law-makers, 
as  a  body,  are  ignorant,  corrupt  and  unprincipled;  that  the 
majority  of  them  are,  directly  or  indirectly,  under  the  control 
of  the  very  monopolies  against  whose  acts  we  have  been  seek- 
ing relief.  .  .  .  There  has  been  invented  by  the  Standard  Oil 
Company  no  argument  or  assertion,  however  false  or  ridicu- 
lous, which  has  not  found  a  man  in  the  Pennsylvania  Legisla- 
ture mean  enough  to  become  its  champion." 

On  every  side  indeed  the  producers  hastened  to  protect 
themselves  against  the  Lord  of  the  Oil  Regions,  as  Mr.  Rocke- 
feller, not  inaptly,  was  called,  on  the  completion  of  his  pipe- 
line monopoly.  That  they  were  not  merely  alarmists  in  think- 
ing that  they  must  do  something  to  protect  their  interests  was 
demonstrated  sooner  than  was  anticipated.  The  demonstra- 
tion was  hurried  by  an  unforeseen  and  difficult  situation — a 
great  outpouring  of  oil  in  a  new  field — the  Bradford  or 
Northern  Field  in  McKean  County,  Pennsylvania.  About  the 
time  that  Mr.  Rockefeller's  lordship  was  realised  it  became 
certain  that  a  deposit  of  oil  had  been  discovered  which  was 

[215] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
going  to  lead  soon  to  a  production  vastly  in  excess  of  the  con- 
sumption, as  well  as  in  excess  of  the  then  existing  facilities 
for  gathering  and  storing  oil.  If  Mr.  Rockefeller  wished  to 
keep  his  monopoly  he  must,  it  was  evident,  enter  upon  a  cam-  | 
paign  of  expansion  calling  for  an  immense  expenditure  of 
energy  and  money.  He  must  lay  pipes  in  a  hundred  directions 
to  get  the  output  of  new  wells ;  he  must  build  tanks  holding 
thousands  of  barrels  to  receive  the  oil.  And  all  of  this  must 
be  done  quickly  if  rivals  were  to  be  kept  out  of  the  way. 
There  was  no  hesitation  on  the  part  of  the  United  Pipe  Lines. 
One  of  the  greatest  construction  feats  the  country  has  ever 
seen  was  put  through  in  the  years  1878,  1879  and  1880  in  the 
Bradford  oil  field  by  the  Standard  interests.  It  was  a  wonder- 
ful illustration  of  the  surpassing  intelligence,  energy  and 
courage  with  which  the  Standard  Oil  Company  attacks  its 
problems.  But  while  it  was  putting  through  this  feat  it  insti- 
tuted a  policy  toward  the  producers  which  was  regarded  by 
them  as  tyrannical  and  unjustifiable.  The  first  manoeuvre  in 
this  new  policy  hit  the  producer  in  a  very  tender  spot,  for  it 
concerned  the  price  he  was  to  receive  for  oil. 

The  method  which  prevailed  at  the  time  in  handling  and 
buying  and  selling  oil  was  this:  At  the  request  of  the  well 
owner  connected  with  a  pipe-line  his  oil  was  run  and  credited 
to  him  in  the  pipe-line  office.  Here  he  could  hold  it  as  long 
as  he  wished  by  paying  a  storage  charge.  If  he  wished  to  sell 
his  "credit  balance,"  as  oil  to  his  account  was  called,  he  sim- 
ply gave  the  buyer  an  order  on  the  line  for  the  oil,  and  it  was 
tranferred  to  the  account  of  the  new  buyer.  The  pipe-lines 
frequently  had  hundreds  of  thousands  of  barrels  of  oil  in 
hand,  and  they  traded  with  this  oil  as  banks  do  with  their 
deposits — that  is,  they  issued  certificates  for  each  1,000  barrels 
of  oil  on  hand,  and  these  certificates  were  negotiable  like  any 
other  paper.  Now  the  United  Pipe  Lines  acknowledged  itself 
a  common  carrier,  and  so  was  obliged  to  discharge  the  duty 

[216]   ' 


THE  CRISIS  OF  1878 

of  collecting  oil  on  demand,  or  at  least  within  a  reasonable 
time  after  the  demand  of  its  patrons. 

But  in  December,  1877,  after  the  monopoly  was  completed, 
they  refused  to  discharge  their  obligations  in  the  customary 
way.  On  the  plea  that  they  had  not  sufficient  tankage  to  carry 
oil  in  the  Bradford  field,  they  issued  an  order  that  no  oil 
would  be  run  in  that  district  for  any  one  unless  it  was  sold  for 
"immediate  shipment" — that  is,  no  oil  would  be  taken  to 
hold  for  storage ;  it  would  be  taken  for  shipping  only.  At  the 
same  time  the  Standard  buyer,  J.  A.  Bostwick,  decreed  that 
henceforth  no  Bradford  oil  would  be  bought  for  immediate 
shipment  unless  it  was  offered  at  less  than  the  market  price. 
No  fixed  discount  was  set.  The  seller  was  asked  what  he  would 
take;  his  offer  was,  of  course,  according  to  his  necessities. 
Even  then  an  answer  was  not  always  immediately  given.  The 
seller  was  told  to  come  back  in  five  or  ten  days  and  he  would 
be  told  if  his  oil  would  be  taken.  A  feature  of  the  new 
order,  particularly  galling  to  the  oil  men,  was  the  manner  in 
which  it  was  enforced.  Formerly  the  buyer  and  seller  had  met 
freely  in  the  oil  exchanges  and  their  business  offices,  and 
transactions  had  been  carried  on  as  among  equals.  Now  the 
producers  were  obliged  to  form  in  line  before  the  United 
Pipe  Lines'  offices  and  to  enter  one  at  a  time  to  consult  the 
buyer.  A  line  of  a  hundred  men  or  more  often  stood  during 
the  hours  set  before  the  office,  waiting  their  turn  to  dispose  of 
their  oil.  It  should  be  said  in  justice  to  Mr.  Bostwick  that  he 
was  not  the  first  buyer  to  take  oil  at  a  discount.  The  pro- 
ducers themselves  frequently  offered  oil  at  less  than  the  mar- 
ket price  when  in  need  of  money,  but  Mr.  Bostwick  was  the 
first  buyer  in  a  situation  to  force  them  to  make  the  discount 
regularly.  When  these  orders  came,  few  of  the  producers  had 
sufficient  private  tankage  to  take  care  of  any  amount  of  oil. 
Here  was  the  situation  then:  to  keep  oil  from  running  on 
the  ground  the  producer  must  sell  it;  but  if  he  sold  it  he  must 

[217] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
take  a  price  from  two  to  twenty-five  cents  or  more  below 
the  market. 

The  immediate  shipment  order  was  not  an  invention  of  the 
United  Pipe  Lines.  It  had  been  enforced  more  than  once  for 
brief  periods  by  various  lines  when  they  found  their  capacity 
overcrowded  by  some  unexpected  situation.  In  1872  epizootic 
among  the  horses  so  upset  things  in  the  Oil  Regions  that  for 
a  short  time  an  immediate  shipment  order  was  enforced.  In 
1874,  when  the  pipe-lines  were  overtaxed  by  a  great  outpour- 
ing of  oil  in  the  Lower  Field,  immediate  shipment  had  been 
attempted,  but  at  that  time  there  were  still  so  many  inde- 
pendent pipes  struggling  for  business  that  the  movement  met 
no  success.  Now,  however,  the  United  Pipe  Lines  had  things 
its  own  way.  That  they  were  not  ready  to  meet  the  growing 
Bradford  production  is  plain  from  a  study  of  the  figures. 
There  were  in  the  Oil  Regions  at  the  close  of  1877,  according 
to  the  Oil  City  Derrick,  4,000,000  barrels  of  tankage.  There 
was  on  hand  at  this  time  3,127,837  barrels  of  oil,  but  the 
empty  tankage  was  in  the  wrong  place.  In  the  Bradford  field, 
where  the  daily  production  had  suddenly  increased  from  2,000 
barrels  in  January  to  8,451  barrels  in  December,  there  was 
only  a  little  over  200,000  barrels  of  tankage.*  In  order  to  take 
care  of  the  oil  the  pipe-lines  began  to  make  nearly  all  their 
shipments  from  that  field,  and  oil  piled  up  in  the  Lower 
Region  to  the  great  dissatisfaction  of  the  producers  there. 

As  soon  as  the  situation  of  the  Bradford  field  was  realised 
both  the  United  Pipes  and  the  producers  began  a  furious  cam- 
paign of  tank  building.  By  the  beginning  of  April,  1878,  the 
tankage  there  had  been  increased  to  1,152,028  barrels.!  Be- 
tween April  1  and  November  1  seventy  tanks  of  from  10,000 
to  25,000  barrels  capacity  were  built  in  McKean  County.  The 
greater  number  of  these  belonged  to  the  producers.  According 
to  the  United  Pipe  Lines'  statement,  there  was  under  their  con- 

*  Oil  City  Derrick,  January  5,  1878.  f  Derrick  Handbook,  Vol.  II. 

[218] 


THE  CRISIS  OF  1878 

trol  in  the  entire  Oil  Regions  in  October  5,200,000  barrels  of 
tankage,  two-thirds  of  which  belonged  to  producers,  but  was 
held  by  them  under  a  lease.*  But  oil  poured  from  the  ground 
faster  than  tanks  could  be  built.  In  six  months — that  is,  by  July, 
1878, — the  daily  output  of  Bradford  had  become  over  18,000 
barrels,  an  increase  of  10,000  barrels  a  day  over  that  of  the 
previous  December.  That  it  was  a  most  difficult  situation  for 
everybody  is  evident.  There  was  but  one  way  to  prevent  loss — 
shut  down  the  wells  and  stop  the  drill;  but  this  the  producers 
refused  to  consider.  Of  course  the  price  of  oil  went  down 
rapidly,  so  far  did  the  production  exceed  consumption.  But 
why,  cried  the  producer,  when  oil  is  already  so  low,  take 
advantage  of  our  necessity  and  force  us  into  competition  with 
each  other;  why  enforce  this  immediate  shipment?  They 
answered  their  question  themselves,  and  began  then  to  make 
a  charge  against  the  Standard,  which  they  continue  to  make 
to-day;  that  is,  that  it  habitually  meets  the  extraordinary  ex- 
penses to  which  it  is  put  by  depressing  the  price  of  crude  oil 
— "taking  it  out  of  the  producer."  The  Bradford  region 
demanded  great  investments,  therefore  immediate  shipment. 
"The  producer  pays."  The  writer  has  no  documentary  proof 
that  this  is  Mr.  Rockefeller's  policy,  but  there  is  no  question 
that  the  Oil  Region  believes  it  is,  and  this  belief  must  be  taken 
into  account  if  one  attempts  to  explain  the  long  warfare  of  the 
oil  country  on  him  and  his  company.  It  is  a  common  enough 
thing  to-day,  indeed,  to  hear  oil  producers  in  Northwestern 
Pennsylvania  remark  facetiously  when  a  new  endowment  to 
Chicago  University  is  reported:  "Yes,  I  contributed  so  much 
on  such  a  day.  Don't  you  remember  how  the  market  slumped 
without  a  cause?  The  university  needed  the  money,  and  so  Mr. 
Rockefeller  called  on  us  to  stand  and  deliver." 

*The  stocks  on  hand  at  the  end  of  this  month  were  4,221,769  barrels.  On  November 
25,  1878,  the  Derrick  published  tables  showing  4,576,500  barrels  of  tankage  up  and 
building  in  the  Bradford  field.  Connected  with  the  United  Lines  were  1,774,500  barrels 
already  in  use  and  1,347,000  building. 

[219] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

A  few  months  after  "immediate  shipment"  was  begun  a  new 
cause  for  dissatisfaction  arose.  More  or  less  private  tankage 
leased  to  the  lines  had  always  been  in  existence.  It  enabled 
a  producer  to  carry  his  oil  without  paying  storage,  and,  of 
course,  it  was  the  business  of  the  company  to  empty  this  stor- 
age within  a  reasonable  time  after  the  owner  demanded  it. 
But  in  the  spring  the  lines,  under  the  same  plea  of  under 
capacity,  refused  to  carry  out  this  duty  to  the  tank  owner; 
that  is,  they  refused  to  give  him  his  tankage,  although  he  had 
sold  his  oil.  Thus  A  owns  5,000  barrels  of  tankage.  It  is  full. 
He  sells  a  portion  of  it  to  Mr.  Bostwick  and  asks  the  United 
Pipe  Lines  to  run  the  oil  accumulated  at  his  wells.  But  the 
United  Pipe  Lines  refuses  on  the  ground  that  the  line  is  full. 
The  loss  to  producers  incident  upon  these  orders  was  terrible. 
All  over  the  Bradford  field  men  saw  their  oil  running  on  the 
ground,  though  they  offered  to  sell  it  at  ruinous  prices,  and 
though  they  might  have  thousands  of  barrels  of  tankage  leased 
to  the  United  Lines.  Yet  they  did  not  riot;  conscious  that  their 
own  reckless  drilling  had  brought  on  the  trouble,  they  cursed 
the  Standard,  and  put  down  more  wells! 

But  in  the  spring  of  1878  Mr.  Rockefeller  and  his  col- 
leagues instituted  a  series  of  manoeuvres  which  shattered  the 
last  remnant  of  confidence  the  oil  men  had  in  the  sincerity 
of  their  claim  that  they  were  doing  their  utmost  to  relieve  the 
distressed  Oil  Regions,  and  that  their  measures  were  necessary 
to  hold  the  producers  in  check.  The  pipe-lines  began  to  refuse 
to  load  cars  for  the  shippers  who  supplied  the  few  inde- 
pendent refiners  with  oil.  The  experiences  of  many  of  these 
independent  oil  men  have  been  told  before  the  courts.  For 
instance,  W.  H.  Nicholson,  the  representative  of  Mr.  Ohlen, 
of  New  York,  a  shipper  of  petroleum,  testified  *  that  in 
May,  1878,  he  began  to  have  difficulty  in  getting  cars.  At 

*  Investigation  ordered  by  the  secretary  of  internal  affairs  of  the  Commonwealth  of 
Pennsylvania,  1878. 

[  220  ] 


THE  CRISIS  OF  1878 

Olean,  one  day,  Mr.  Ohlen  telegraphed  to  the  officials 
of  the  Erie  road  to  know  if  he  could  get  100  cars  to  run 
East.  The  reply  came  back  Yes.  About  noon,  Mr.  Nicholson 
says,  he  saw  Mr.  O'Day,  the  manager  of  the  United  Pipe  Lines, 
in  which  his  oil  was  stored,  and  told  him  that  he  was  waiting 
to  have  his  cars  loaded.  Mr.  O'Day  at  once  said  he  could  not 
load  the  cars.  "But  I  have  an  order  from  the  Erie  officials,  giv- 
ing me  the  cars,"  Mr.  Nicholson  objected.  "That  makes  no 
difference, "  O'Day  replied ;  "I  cannot  load  cars  except  upon  an 
order  from  Pratt."  Nor  would  he  do  it.  The  cars  were  not 
loaded  for  Mr.  Nicholson,  although  at  that  time  he  had  ten 
thousand  barrels  of  oil  in  the  United  Pipe  Lines,  and  an 
order  for  100  cars  from  the  officials  of  the  Erie  road  in  his 
hand. 

B.  B.  Campbell,  at  that  time  president  of  the  Producers' 
Union,  gave  his  experience  at  this  time  in  the  suit  of  the 
Commonwealth  against  the  Pennsylvania  Railroad: 

"I  never  heard  of  a  scarcity  of  cars  until  the  early  part  of  June,  1878;  I  came  to 
Parker  about  five  o'clock  in  the  evening,  and  found  the  citizens  in  a  state  of  terrible 
excitement;  the  Pipe-Lines  would  not  run  oil  unless  it  was  sold;  the  only  shippers  we 
had  in  Parker  of  any  amount,  viz.,  the  agents  of  the  Standard  Oil  Company,  would 
not  buy  oil,  stating  that  they  could  not  get  cars;  hundreds  of  wells  were  stopped  to 
their  great  injury;  thousands  more,  whose  owners  were  afraid  to  stop  them  for  fear 

I  of  damage  by  salt-water,  were  pumping  the  oil  on  the  ground.  I  used  all  the  influence 
I  had  to  prevent  an  outbreak  and  destruction  of  railroad  and  pipe-lines;  I  at  once 
went  over  to  the  Allegheny  Valley  Railroad  office  and  telegraphed  to  John  Scott, 
president  of  the  Allegheny  Valley  Railroad  Company: 

'"The  refusal  of  the  United  to  run  oil  unless  sold  upon  immediate  shipment,  and 
of  the  railroad  to  furnish  cars,  has  created  such  a  degree  of  excitement  here  that  the 
more  conservative  part  of  the  citizens  will  not  be  able  to  control  the  peace,  and  I  fear 
that  the  scenes  of  last  July  will  be  repeated  on  an  aggravated  scale/  That  message  I 
left  in  the  office  about  seven  o'clock  in  the  evening.  I  got  up  the  next  morning  before 

Iven  and  received  an  answer: 
'"What  do  you  advise  should  be  done?  John  Scott.'  I  answered:  'Will  meet  you 
-morrow  morning,'  which  would  be  Saturday. 
"On  Saturday  morning  I  came  in  on  an  early  train  and  met  at  the  depot  Mr.  Shinn, 
[221] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

then,  I  believe,  vice-president  of  the  Allegheny  Valley  Railroad  Company,  David  A. 
Stewart,  one  of  the  directors  of  the  road,  and  Thomas  M.  King,  assistant  superin- 
tendent. I  spoke  very  plainly  to  Mr.  Shinn,  telling  him  that  the  idea  of  a  scarcity 
of  cars  on  daily  shipments  of  less  than  30,000  barrels  a  day  was  such  an 
absurd,  barefaced  pretence  that  he  could  not  expect  men  of  ordinary  intelligence  to 
accept  it,  as  the  preceding  fall,  when  business  required,  the  railroads  could  carry 
day  after  day  from  50,000  to  60,000  barrels  of  oil.  Mr.  Shinn  stated  clearly  that 
I  knew  that  the  Allegheny  Valley  Railroad  Company  did  not  control  the  oil  business 
over  its  line,  but  was  governed  entirely  and  exclusively  by  orders  received  from  the 
Pennsylvania  Railroad  Company.  I  then  requested  him  to  be  the  vehicle  of  com- 
municating to  the  Pennsylvania  Railroad  officials  my  views  on  the  subject,  telling 
him  that  I  was  convinced  that  unless  immediate  relief  was  furnished  and  cars  afforded 
there  would  be  an  outbreak  in  the  Oil  Regions.  After  further  conversation  we  parted. 
My  interview  with  them  was  not  as  officials  of  the  Allegheny  Valley  Railroad  Company, 
but  as  representatives  of  the  oil  traffic  carried  and  controlled  by  the  Pennsylvania 
road.  On  the  next  Monday  I  returned  to  Parker.  After  passing  Redbank,  where  the 
low  grade  road,  the  connecting  link  between  the  Valley  Road  and  the  Philadelphia 
and  Erie  Road,  meets  the  Valley  Road — between  that  point  and  Parker — the  express 
train  was  delayed  for  over  half  an  hour  in  passing  through  hundreds  of  empty  oil  cars."* 

In  June  another  exasperating  episode  occurred,  growing 
out  of  the  attempts  of  the  oil  men  to  secure  independent  routes 
to  the  seaboard.  As  we  have  seen,  two  enterprises  had  been 
launched  late  in  1877  under  the  patronage  of  the  Petroleum 
Producers'  Union.  As  soon  as  the  Equitable  had  acquired  its 
right  of  way  to  Buffalo,  Mr.  Emery,  the  head  of  the  com- 
pany, his  papers  in  hand,  sought  an  interview  with  representa- 
tives of  the  Buffalo  and  McKean  road,  and  told  them  if 
they  did  not  consent  that  the  Equitable  lay  a  pipe-line  to  their 
road,  and  did  not  contract  to  carry  the  oil  from  that  connec- 
tion to  Buffalo,  the  pipe-line  to  Buffalo  would  be  laid.  After 
considerable  negotiation  a  contract  was  made  with  the  rail- 
road, and  by  June  the  new  company  was  ready  with  pipe- 
line, cars  and  barges  to  carry  oil  to  New  York.  But  no  sooner 
did  they  attempt  to  begin  operations  than  the  railroad,  under 
pressure  from  the  Pennsylvania  Railroad  it  was  claimed,  re- 

*  Abridged  from  Mr.  Campbell's  testimony. 
[  222  ] 


THE  CRISIS  OF  1878 

fused  to  carry  out  its  contracts.  The  cars  the  Equitable  ordered 
sent  to  the  loading  track  were  refused,  a  side  track  it  had 
laid  was  torn  up,  the  frog  torn  out;  everything,  indeed,  was 
done  to  prevent  the  Equitable  doing  business,  though  finally 
a  vigorous  appeal  to  the  law  brought  the  road  to  terms,  and 
in  July  oil  began  to  flow  Eastward  by  this  indirect  route.  No 
sooner  did  the  Standard  find  that  the  Equitable  people  were 
really  doing  business  than  they  appealed  to  the  railroads.  A 
meeting  of  the  representatives  of  the  trunk  lines  was  held  at 
Saratoga  in  July,  and  the  rates  on  crude  Eastward  were 
dropped  to  eighty  cents  to  meet  the  new  competition. 

While  this  fight  was  going  on  against  the  Equitable  all 
sorts  of  interference  were  being  put  in  the  way  of  the  seaboard 
line  between  Brady's  Bend  and  Baltimore.  It  was  ridiculed 
as  chimerical  to  attempt  to  pump  oil  over  the  mountains,  and 
General  Haupt  was  declared  to  be  a  visionary  engineer  with 
a  record  of  failures.  All  the  old  stories  retailed  in  1876  were 
dragged  out  again.  The  farmers  were  told  that  the  leakage 
from  the  pipe-line  would  ruin  their  fields  and  endanger  their 
buildings,  and  an  active  campaign  to  excite  prejudice  was  car- 
ried on  again  in  the  farmers'  papers.  Philadelphia  and  Pitts- 
burg both  fought  the  plan,  the  press  and  chambers  of  com- 
merce opposing  the  free  pipe  bill  at  that  time  before  the  Legis- 
lature, and  the  project  generally.  In  Pittsburg  the  opposition 
created  almost  a  riot,  for  the  oil  producers  of  the  Lower  Field, 
who  had  long  bought  their  supplies  there,  now  threatened  to 
boycott  the  city  if  the  pipe-line  was  fought.  So  strong  was  the 
opposition  that  capital  took  fright  and  the  company  found 
it  most  difficult  to  secure  funds.  This  opposition  to  the  pipe- 
line was,  of  course,  charged  against  the  Standard  and  the 
Pennsylvania  Railroad. 

Now,  while  the  railroads  were  refusing  cars  to  independent 
shippers, — or  if  they  gave  an  order  for  them,  the  United  Pipe 
Lines  were  refusing  to  load  them, — while  the  Standard  and  the 

[  223  ]f 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

railroads  were  doing  their  utmost  to  prevent  the  Equitable 
Line  doing  business,  and  were  discouraging  in  every  way  the 
seaboard  pipe-line — new  routes  which  would  take  care  of  a 
proportion,  at  least,  of  the  oil  which  they  claimed  they  could 
not  handle — thousands  of  barrels  of  oil  were  running  on  the 
ground  in  Bradford,  and  two  of  the  independent  refineries  of 
New  York  shut  down  entirely  in  order  that  a  third  of  their 
number  might  get  oil  enough  to  fill  an  order. 

This  interference  with  the  outside  interests,  thus  preventing 
the  small  degree  of  relief  which  they  would  have  afforded,  and 
a  growing  conviction  that  the  Standard  meant  to  keep  up  the 
"immediate  shipment"  order,  at  least  until  it  had  built  the 
pipes  and  tanks  needed  in  the  Bradford  field,  finally  aroused 
the  region  to  a  point  where  riot  was  imminent.  The  long  line 
of  producers  who  filed  into  the  United  Pipe  Lines'  office  day 
after  day  to  sell  their  oil  at  whatever  prices  they  could  get 
for  it,  and  who,  having  put  in  an  offer  which  varied  accord- 
ing to  their  necessities,  were  usually  told  to  come  back  in  ten 
days,  and  the  buyer  would  see  whether  he  wanted  it  or  not — 
this  long  line  of  men  began  to  talk  of  revolution.  Crowds  gath- 
ered about  the  offices  of  the  Standard  threatening  and  jeering. 
Mysterious  things,  cross-bones  and  death-heads,  were  found 
plentifully  sprinkled  on  the  buildings  owned  by  the  Standard 
interests.  More  than  once  the  slumber  of  the  oil  towns  was 
disturbed  by  marching  bodies  of  men.  It  was  certain  that  a 
species  of  Kuklux  had  hold  of  the  Bradford  region,  and  that 
a  very  little  spark  was  needed  to  touch  off  the  United  Pipe 
Lines.  In  the  meantime  things  were  scarcely  less  exciting  in 
the  Lower  Fields.  The  "immediate  shipment"  order  was 
looked  upon  there  as  particularly  outrageous,  because  there 
was  no  lack  of  lines  or  tanks  in  that  field,  and  when,  in  the 
summer  of  1878,  there  was  added  to  this  cause  an  unjustifiable 
scarcity  of  cars,  excitement  rose  to  fever  heat. 

The  only  thing  which  prevented  a  riot  at  this  time  and 

[224] 


THE  CRISIS  OF  1878 

great  destruction  of  property,  if  not  of  life,  was  the  strong 
hand  the  Petroleum  Producers'  Union  had  on  the  country. 
Fearing  that  if  violence  did  occur  the  different  movements 
they  had  under  way  would  be  prejudiced,  they  sent  a  committee 
of  twenty-five  men  to  Harrisburg  to  see  Governor  Hartranft. 
They  laid  before  him  and  the  attorney-general  of  the  state 
the  grievance  of  the  oil  producers  in  an  "appeal"  reviewing 
the  history  of  the  industry.*  They  demanded  that  the  United 
Pipe  Lines  be  made  to  perform  its  duty  as  a  public  carrier, 
and  the  railroads  be  made  to  cease  their  discrimination  against 
shippers  both  in  the  matter  of  rebates  and  in  furnishing  cars. 
They  called  the  Governor's  attention  to  the  fact  that  there 
were  already  existing  laws  touching  these  matters  which,  in 
their  judgment,  met  the  case,  and  if  the  existing  laws  did  not 
give  them  relief,  that  it  was  the  plain  duty  of  the  executive 
to  call  a  meeting  of  the  Legislature  and  pass  such  acts  as 
would  do  so.  Governor  Hartranft  was  much  stirred  by  the 
story  of  the  producers.  He  went  himself  to  the  Oil  Regions  to 
see  the  situation,  and  in  August  directed  the  producers  to  put 
their  demands  into  the  form  of  an  appeal.  This  was  done,  and 
it  was  decided  to  bring  proceedings  by  writ  of  quo  warranto 
against  the  United  Pipe  Lines,  and  by  separate  bills  in  equity 
against  the  Pennsylvania  Railroad  and  the  other  lines  doing 
business  in  the  state.  It  was  September  before  the  state  author- 
ities began  their  investigation  of  the  United  Pipe  Lines,  the 
hearings  being  held  in  Titusville.  Many  witnesses  summoned 
failed  to  appear,  but  enough  testimony  was  brought  out  in 
this  investigation  to  show  that  the  railroads  had  refused  to 
furnish  cars  for  independents  when  they  had  them  empty,  and 
that  the  United  Pipe  Lines  had  clearly  violated  its  duty  as 
a  common  carrier.  In  his  report  on  this  investigation  the 
secretary  of  internal  affairs,  William  McCandless,  rendered 

*  See  Appendix,  Number  32.    Producers'  Appeal  of  1878  to  Governor  John    F. 
Hartranft  of  Pennsylvania. 

[225] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

a  verdict  that  the  charges  of  the  oil  producers  had  not  been 
substantiated  in  any  way  that  demanded  action. 

The  indignation  which  followed  this  report  was  intense. 
It  found  a  vent  in  the  hanging  in  effigy  of  McCandless,  who 
was  universally  known  in  the  state  as  "Buck."  In  the  oil 
exchange  at  Parker,  on  the  morning  of  October  19,  the  figure 
of  a  man  was  found  hanged  by  the  neck  to  a  gallows,  and  the 
producers  left  it  hanging  there  all  day,  so  that  they  might 
jeer  and  curse  it.  Across  the  forehead  of  the  effigy  in  large 
blood-red  letters  were  the  words : 


PENNSYLVANIA   RAILROAD 


Pinned  to  the  gallows  there  was  a  card  bearing  a  quotation 
from  Secretary  McCandless's  report: 


The  charges  of  the  oil  producers  have  not  been 
substantiated  in  any  way  that  demands  action. 


In  Bradford  a  huge  effigy  hung  in  the  streets  all  day,  and 
in  the  village  of  Tarport,  near  by,  another  swayed  on  the  gal- 
lows. They  pulled  down  the  effigy  at  Bradford,  and  drew 
from  a  pocket  what  purported  to  be  a  check  signed  by 
John  D.  Rockefeller,  president  of  the  Standard  Oil  Com- 
pany, in  favour  of  "Buck"  McCandless,  for  $20,000,  and 
endorsed  by  the  Pennsylvania  Railroad  Company.  That  repre- 
sented the  price,  they  said,  that  McCandless  got  for  signing 
the  report.  Throughout  the  oil  country  there  was  hardly  an 
oil  producer  to  be  found  not  associated  with  the  Standard  Oil 
Company  who  did  not  believe  that  McCandless  had  sold  him- 
self and  his  office  to  the  Standard  Oil  Combination  for  $20,- 
000,  and  used  the  money  to  help  in  his  Congressional  canvass. 

The  excitement  in  the  Oil  Regions  spread  all  over  the 

[226] 


THE  CRISIS  OF  1878 

country.  Something  of  the  importance  the  press  attached 
to  it  may  be  judged  from  the  way  the  New  York  Sun 
handled  the  question.  For  six  weeks  it  kept  one  of  the  ablest 
members  of  its  staff  in  the  Oil  Regions.  Six  columns  of  the 
first  page  of  the  issue  for  November  13  was  taken  up  with  the 
story  of  the  excitement,  coupled  with  the  full  account  of  the 
South  Improvement  Company,  and  the  development  of  the 
Standard  Oil  Company  out  of  that  concern.  On  November 
23  the  first  page  contained  four  columns  more  under  blazing 
headings. 

Early  in  1879  the  hearing  in  the  suits  in  equity  brought 
by  the  commonwealth  against  the  various  transportation 
companies  of  which  the  producers  had  been  complaining  were 
begun.  The  witnesses  subpoenaed  failed  at  first  to  appear,  and 
when  on  the  stand  they  frequently  refused  to  reply;  but  it 
soon  became  apparent  to  them  that  the  state  authorities  were 
in  earnest,  and  that  they  must  "answer  or  go  to  Europe."  By 
March,  1879,  an  important  array  of  testimony  had  been 
brought  out.  Among  the  Standard  men  who  had  appeared 
had  been  John  D.  Archbold,  William  Frew,  Charles  Lock- 
hart  and  J.  J.  Vandergrift.  A  score  or  more  of  producers  also 
appeared.  The  most  important  witness  from  the  railroad  cir- 
cles, and,  indeed,  the  most  important  witness  who  appeared, 
was  A.  J.  Cassatt.  Mr.  Cassatt's  testimony!  was  startling  in 
its  candour  and  its  completeness,  and  substantiated  in  every 
particular  what  the  oil  men  had  been  claiming:  that  the 
Pennsylvania  Railroad  had  become  the  creature  of  the  Stand- 
ard Oil  Company;  that  it  was  not  only  giving  that  company 
rates  much  lower  than  to  any  other  organisation,  but  that  it 
was  using  its  facilities  with  a  direct  view  of  preventing  any 
outside  refiner  or  dealer  in  oil  from  carrying  on  an  inde- 
pendent business.* 

*The  story  of  the  Empire  Transportation  Company,  told  in  the  last  chapter,  was 
brought  out  in  this  testimony  of  Mr.  Cassatt's. 

[227] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

The  same  or  similar  conditions,  not  only  in  oil,  but  in  other 
products,  which  led  to  these  suits,  led  to  investigations  in  other  j 
states.  Toward  the  end  of  1878  the  Chamber  of  Commerce 
of  New  York  City  demanded  from  the  Legislature  of  the 
state  an  investigation  of  the  New  York  railroads.  This  inves- 
tigation was  carried  on  from  the  beginning  of  1879.  The  reve- 
lations were  amazing.  Before  the  Hepburn  Commission,  as 
it  was  called  from  the  name  of  the  chairman,  was  through 
with  its  work  there  had  appeared  before  it  to  give  testimony 
in  regard  to  the  conduct  of  the  Standard  Oil  Company  and  of 
the  relation  of  the  Erie  and  the  Central  roads  to  it,  H.  H. 
Rogers,  J.  D.  Archbold,  Jabez  A.  Bostwick  and  W.  T. 
Sheide.  A  large  number  of  independent  oil  men  had  also 
appeared.  William  H.  Vanderbilt  had  been  examined,  and 
G.  H.  Blanchard,  the  freight  agent  of  the  Erie  road,  had  ; 
given  a  full  account  of  the  relation  of  the  Erie  to  the  Stand- 
ard, perhaps  the  most  useful  piece  of  testimony,  after  that  of 
Mr.  Cassatt,  belonging  to  this  period  of  the  Standard's  his- 
tory.* 

At  the  same  time  that  the  Pennsylvania  suits  were  going 
on,  and  the  Hepburn  Commission  was  doing  its  work,  the 
Legislature  of  Ohio  instituted  an  investigation.  It  was  com- 
monly charged  that  this  investigation  was  smothered,  but  it 
was  not  smothered  until  H.  M.  Flagler  had  appeared  before 
it  and  given  some  most  interesting  facts  concerning  rebates.  A 
number  of  gentlemen  who  were  rinding  it  hard  to  do  oil  busi- 
ness also  appeared  before  the  Ohio  committee  and  told  their 
stories.f  By  April,  1879,  there  had  been  brought  out  in  these 

*  The  testimony  taken  before  the  Hepburn  Committee  has  never  been  printed  in 
the  series  of  Assembly  documents.  An  edition  of  ioo  copies  was  printed  during 
the  session  for  the  use  of  the  committee.  It  is  usually  bound  in  five  volumes,  and  is, 
of  course,  very  rare. 

t300  copies  of  the  report  of  the  testimony  taken  were  printed.  No  copy  is  to  be 
found  in  any  library  of  the  state  of  Ohio.  The  writer  has  never  seen  but  one  copy  of 
this  report. 

[228  ] 


THE  CRISIS  OF  1878 

various  investigations  a  mass  of  testimony  sufficient  in  the 
judgment  of  certain  of  the  producers  to  establish  the  truth  of 
a  charge  which  they  had  long  been  making,  and  that  was  that 
the  Standard  was  simply  a  revival  of  the  South  Improvement 
Company.  Now  the  verdict  of  the  Congressional  Committee 
had  been  that  the  South  Improvement  Company  was  a  con- 
spiracy. Therefore,  said  the  producers,  the  Standard  Oil  Com- 
pany is  a  conspiracy.  Their  hope  had  been,  from  the  first,  to 
obtain  proof  to  establish  this  charge.  Having  this  they  be- 
lieved they  could  obtain  judgment  from  the  courts  against 
the  officials  of  the  company,  and  either  break  it  up  or  put 
its  members  in  the  penitentiary.  The  more  hotheaded  of  the 
producers  believed  that  they  now  had  this  evidence. 

If  one  will  examine  the  testimony  which  had  been  given 
thus  far  in  the  course  of  the  various  examinations  one  will 
see  that  there  was  reason  for  their  belief.  In  the  first  place, 
it  had  been  established  that  all  the  stockholders  of  the  South 
Improvement  Company,  excepting  four,  were  now  members 
of  the  Standard  Oil  Combination.  Indeed,  the  only  persons 
holding  high  positions  in  the  new  combination  at  this  date 
who  were  not  South  Improvement  Company  men  were, 
Charles  Pratt,  J.  J.  Vandergrift,  H.  H.  Rogers  and  John  D. 
Archbold. 

The  South  Improvement  Company  had  been  a  secret 
organisation.  So  was  the  new  Standard  alliance;  that  is,  the 
most  strenuous  efforts  had  been  made  to  keep  it  secret;  for 
instance,  the  sale  of  the  works  of  Lockhart,  Warden  and  Pratt 
to  the  Standard  was  kept  from  the  public.  Indeed,  it  was  a 
year  after  these  sales  before  even  the  Erie  Railroad  knew  that 
Mr.  Rockefeller  had  any  affiliations  besides  those  with  Pratt 
and  Company,  and  it  made  its  contracts  with  him  on  this  as- 
sumption. When  purchases  of  refineries  were  made  it  was  the 
custom  to  continue  the  business  under  the  name  of  the  original 
concern;  thus,  when  Mrs.  B.,  of  Cleveland,  sold  in  1878,  as 

[229] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

recounted  in  the  last  chapter,  the  persons  selling  were  obliged 
to  keep  the  sale  secret  even  from  the  employees  of  the  con- 
cern. "The  understanding  was  with  regard  to  the  sale  of  the 
property  to  the  Standard  Oil  Company,"  said  the  shipping 
clerk  in  his  affidavit,  "that  it  should  not  be  known  outside  of 
their  own  parties,  that  it  was  to  be  kept  a  profound  secret, 

and  that  the  business  was  to  be  carried  on  as  if  the  B 

Oil  Company  was  still  a  competitor."  The  secret  rites  with 
which  the  contract  was  made  in  1876  between  Mr.  Rocke- 
feller and  Scofield,  Shurmer  and  Teagle  have  already  been 
described. 

To  keep  the  relations  of  the  various  Standard  concerns  se- 
cret Mr.  Rockefeller  went  so  far,  in  1880,  as  to  make  an  affi- 
davit like  the  following:  "It  is  not  true,  as  stated  by  Mr. 
Teagle  in  his  affidavit,  that  the  Standard  Oil  Company, 
directly  or  indirectly  through  its  officers  or  agents,  owns  or 
controls  the  works  of  Warden,  Frew  and  Company,  Lockhart, 
Frew  and  Company,  J.  A.  Bostwick  and  Company,  C.  Pratt 
and  Company,  Acme  Refining  Company,  Imperial  Refining 
Company,  Camden  Consolidated  Company,  and  the  Devoe 
Manufacturing  Company;  nor  is  it  true  that  the  Standard  Oil 
Company,  directly  or  indirectly  through  its  officers  or  agents, 
owns  or  controls  the  refinery  at  Hunter's  Point,  New  York. 
It  is  not  true  that  the  Standard  Oil  Company,  directly  or  indi- 
rectly through  its  officers  or  agents,  purchased  or  acquired  the 
Empire  Transportation  Company,  or  furnished  the  money 
therefor;  nor  is  it  true  that  the  Standard  Oil  Company  inaugu- 
rated or  began  or  induced  any  other  person  or  corporation 
to  inaugurate  or  begin  a  war  upon  the  Pennsylvania  Railroad 
Company  or  the  Empire  Transportation  Company,  as  stated 
in  the  affidavit  of  Mr.  Teagle."  * 

There  may  be   a  technical  explanation  of  this   affidavit, 

*  In  the  case  of  the  Standard  Oil   Company  vs.  William  C.  Scofield  et  al.y  in  the 
Court  of  Common  Pleas,  Cuyahoga  County,  Ohio,  1880. 

[230] 


THE  CRISIS  OF  1878 

although  the  writer  knows  of  none.  There  is  certainly  abun- 
dant testimony  in  existence  that  the  works  of  Messrs.  Pratt, 
Lockhart  and  Warden,  at  least,  had  been  bought  long  before 
this  affidavit  was  made,  and  paid  for  in  Standard  Oil  Com- 
pany stock,  and  that  they  were  working  in  alliance  with  that 
company.  It  was  shown  in  the  last  chapter  that  on  October 
l7>  l%77,  tne  Standard  Oil  Company  paid  $2,500,000  in  certi- 
fied checks  on  the  purchasing  price  of  the  plant  of  the  Empire 
Transportation  Company. 

While  none  of  the  other  members  of  the  Standard  Oil 
Company  examined  in  1879  was  quite  so  sweeping  in  his 
denials,  all  of  them  evaded  direct  answers.  The  reason  they 
gave  for  this  evasion  was  that  the  investigations  were  an  inter- 
ference with  their  rights  as  private  citizens,  and  that  the 
government  had  no  business  to  inquire  into  their  methods. 
Consequently  when  asked  questions  they  refused  to  answer 
"by  advice  of  counsel."  Ultimately  the  gentlemen  did  answer 
a  great  many  questions.  But  taking  the  testimony  all  in  all 
through  these  years  it  certainly  is  a  mild  characterisation  to 
say  that  it  totally  lacks  in  frankness.  The  testimony  of  the 
Standard  officials  before  the  Hepburn  Commission  was  so 
evasive  that  the  committee  in  making  its  report  spoke  bitterly 
of  the  company  as  "a  mysterious  organisation  whose  business 
and  transactions  are  of  such  a  character  that  its  members 
decline  giving  a  history  or  description  of  it  lest  this  testimony 
be  used  to  convict  them  of  a  crime."  The  producers  cer- 
tainly were  right  in  claiming  that  secrecy  was  a  characteristic 
of  the  Standard  as  it  had  been  of  the  South  Improvement 
Company. 

The  new  Standard  Combination^  like  the  South  Improve- 
ment Company,  aimed  at  controlling  the  entire  refining  inter- 
est. "The  coal  oil  business  belongs  to  us,"  Mr.  Rockefeller 
once  told  a  recalcitrant  refiner.  His  associates  were  saying  the 

Iame  on  all  sides;  "the  object  of  the  Standard  Oil  Company 
[231] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

is  to  secure  the  entire  refining  business  of  the  world,"  a  mem- 
ber of  the  concern  told  B.  F.  Nye,  an  Ohio  producer.* 

The  method  the  Standard  depended  upon  to  secure  this 
control  was  the  same  as  the  method  of  the  South  Improve- 
ment Company — special  privileges  in  transportation.  We 
have  seen  how  intelligently  and  persistently  Mr.  Rockefeller 
worked  to  secure  these  special  privileges  until,  in  1877,  he 
had  made  with  all  the  trunk  lines  contracts  which  in  every 
particular  paralleled  the  contracts  which  in  January,  1872, 
Messrs.  Scott,  Gould,  Vanderbilt  and  McClellan  made  with 
the  South  Improvement  Company.  He  now  had  a  rebate  on 
every  barrel  of  oil  he  shipped,  and  this  was  given  with  the 
understanding  that  the  railroad  should  allow  no  rebate  to 
any  other  shipper  unless  that  shipper  could  guarantee  and 
furnish  a  quantity  of  oil  for  shipment  which  would,  after 
deduction  of  his  commission,  realise  to  the  road  the  same 
amount  of  profit  realised  from  the  Standard  trade.  He  also 
had  a  drawback  on  every  barrel  his  rivals  shipped.  No  clause 
in  the  South  Improvement  Company's  contract  with  railroads 
had  given  more  offence  to  the  oil  world  than  that  which  called 
for  a  drawback  to  the  company  on  the  oil  shipped  by  outsiders. 
It  will  be  remembered  that  the  beneficiaries  of  this  contract 
were  to  receive  drawbacks  of  $1.06  a  barrel  on  all  crude  oil 
that  outside  parties  shipped  from  the  Oil  Regions  to  New 
York,  and  a  proportionate  drawback  on  that  shipped  from 
other  points.  The  rebate  system  was  considered  illegal  and 
unjust,  but  men  were  more  or  less  accustomed  to  it.  The  draw- 
back on  other  people's  shipment  was  a  new  device,  and  it 
threw  the  Oil  Region  into  a  frenzy  of  rage.  It  did  not  seem 
possible  that  the  Standard  would  attempt  to  revive  this  prac- 
tice again,  and  yet  when  it  had  got  its  hand  strongly  on  the 
four  trunk  lines  it  made  a  demand  for  the  drawback.  It  has 
already  been   recounted  how,   on   February   15,    1878,   four 

*  Ohio  State  Investigation  of  freight  discrimination,  1879. 
[232] 


THE  CRISIS  OF  1878 

months  after  the  Pennsylvania  succumbed  to  the  Standard's 
demand,  Mr.  O'Day  wrote  to  Mr.  Cassatt:  "I  here  repeat 
what  I  once  stated  to  you,  and  which  I  wish  you  to  receive 
and  treat  as  strictly  confidential,  that  we  have  been  for  many 
months  receiving  from  the  New  York  Central  and  Erie  Rail- 
roads certain  sums  of  money,  in  no  instance  less  than  twenty 
cents  per  barrel  on  every  barrel  of  crude  oil  carried  by  each 
of  these  roads.  .  .  .  Co-operating  as  we  are  doing  with 
the  Standard  Oil  Company  and  the  trunk  lines  in  every  effort 
to  secure  for  the  railroads  paying  rates  of  freight  on  the  oil 
they  carry,  I  am  constrained  to  say  to  you  that  in  justice  to 
the  interests  I  represent  we  should  receive  from  your  com- 
pany at  least  twenty  cents  on  each  barrel  of  crude  oil  you 
transport."  And  Mr.  Cassatt  after  seeing  the  freight  bills 
showing  that  both  the  Central  and  Erie  allowed  a  drawback 
gave  orders  that  the  Pennsylvania  pay  one  of  22%  cents.  When 
Mr.  Cassatt  was  under  examination  in  1874  the  examiner 
remarked : 

"I  understand,  Mr.  Cassatt,  that  this  22}4  cents  paid  to  the 
American  Transfer  Company  is  not  restricted  to  all  oil  that 
passed  through  their  lines." 

"No,  sir;  it  is  paid  on  all  oil  received  and  transferred 
by  us." 

Among  the  interesting  documents  presented  at  this  inquiry 
was  a  statement  of  the  crude  oil  shipments  over  the  Pennsyl- 
vania road  for  February  and  March,  1878.*  They  footed  up 
to  a  total  of  343,767^  barrels.  On  this  amount  a  discount  of 
twenty  cents  a  barrel  was  allowed  to  the  Standard  Oil  Com- 
pany through  its  agent,  the  American  Transfer  Company. 
Among  other  independents  who  shipped  this  oil  was  H.  C. 
Ohlen.  In  all,  Mr.  Ohlen  shipped  29,876  barrels,  and  on  this 

*  See  Appendix,  Number  33.  Statement  of  crude  oil  shipments  by  Green  Line 
during  the  months  of  February  and  March,  1878,  to  New  York,  Philadelphia  and 
Baltimore:  showing  drawbacks  allowed  to  American  Transfer  Company. 

[233] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  Standard  Oil  Company  received  twenty  cents  a  barrel! 
That  is,  after  Mr.  Ohlen  had  paid  for  his  oil,  paid  for  having 
it  carried  by  the  pipe-line  to  the  railroad,  and  paid  the  rail-  ! 
road  the  full  rate  of  freight  without  the  commission  the  Stand- 
ard received,  the  Pennsylvania  was  obliged  to  turn  over  to 
the  Standard  Oil  Company  twenty  cents  of  the  amount  he  had  | 
paid  on  each  barrel! 

The  examiner  tried  very  hard  to  find  out  if  there  was  a 
legitimate  reason  why  such  an  allowance  should  have  been 
made  to  the  American  Transfer  Company  on  oil  it  did  not 
handle.  "We  pay  that,"  Mr.  Cassatt  said,  "as  a  commission  to 
them  to  aid  in  securing  us  our  share  of  trade."  "We  pay  it," 
said  the  comptroller,  "for  procuring  oil  to  go  over  the  lines 
in  which  the  Pennsylvania  Railroad  Company  is  inter- 
ested as  against  the  New  York  lines  and  the  New  York 
Central." 

"Do  you  understand,"  the  examiner  questioned  of  one  of 
the  auditors,  "that  the  American  Transfer  Company  secured 
to  the  Pennsylvania  road  the  traffic  of  the  outside  refiners  of 
New  York  (mentioned  in  the  statement  quoted  above)  ?"  "I 
never  raised  a  question  of  that  kind  in  my  mind,"  answered 
the  adroit  auditor. 

But  the  answer  was  evident.  The  American  Transfer  Com- 
pany had  nothing  whatever  to  do  with  the  oil  shipped  by  Mr. 
Ohlen  or  Ayres,  Lombard  and  Company  or  J.  Rousseaux  or 
any  one  of  the  other  independents  mentioned  in  the  statement, 
unless  perchance  that  oil  had  come  originally  from  the  lines  of 
the  American  Transfer  Company.  In  that  case  the  shipper 
had  paid  the  line  for  the  service  rendered,  at  the  time  he 
bought  the  oil — the  custom  then  and  now.  The  tax  was  paid 
by  the  Pennsylvania  solely  because  the  Standard  Oil  Com- 
pany had  the  power  to  demand  it.  The  demand  was  made  in 
the  name  of  the  American  Transfer  Company  as  a  blind. 
Naturally  the  proof  that  the  Standard  had  revived  the  most 

[234] 


THE  CRISIS  OF  1878 

obnoxious  feature  of  the  South  Improvement  Company 
aroused  intense  bitterness  and  disgust  among  the  oil  men. 

Another  offensive  clause  of  the  1872  contracts  was  that 
pledging  the  railroads  to  lower  or  raise  the  gross  rates  of 
transportation  for  such  times  and  to  such  extent  as  might  be 
necessary  to  overcome  competition.  Now,  the  new  contracts  of 
the  Standard  provided  the  same  arrangement;  that  is,  they 
stipulated  that  the  rates  were  to  be  lowered  if  necessary  so  as 
to  place  the  Standard  on  a  parity  with  shippers  by  competing 
lines.  The  workings  of  the  clause  were  illustrated  when  the 
producers  got  the  Equitable  Line  through  in  1878,  the  rail- 
roads dropping  their  charge  to  eighty  cents  a  barrel,  and  in 
some  cases  even  less.  The  producers  certainly  had  evidence 
enough  for  their  claim  that  the  contracts  of  the  South  Im- 
provement Company  and  the  Standard  Oil  Company  with 
the  railroads  were  similar  in  every  particular  as  far  as  princi- 
ples were  concerned — that  they  differed  alone  in  the  amounts 
of  the  rebates  and  drawbacks. 

There  was  plenty  of  evidence  brought  out,  also,  to  show 
that  the  object  of  the  Standard  operations  was  like  that  of 
the  South  Improvement  Company — keeping  up  the  price  of 
refined  oil.  Both  combinations  were  formed  to  keep  the  refined 
article  scarce  on  the  market  by  controlling  all  the  refineries 
and  by  refusing  to  sell  under  competition.  The  officials  of  the 
South  Improvement  Company  stated  under  oath  that  they 
hoped  to  raise  the  price  fifty  per  cent.  The  Central  Organisa- 
tion hoped  to  put  up  the  price  of  refined  from  fifteen  to 
twenty-five  cents.  As  a  matter  of  fact  that  organisation  when 
it  finally  got  control  of  the  market  put  up  the  price  consider- 
ably more.  The  spectacular  demonstration  in  the  winter  of 
1876  and  1877  of  what  could  be  done  in  keeping  up  the  price 

If  refined  was  still  rankling  in  the  minds  of  the  oil  men.  They 
aw  that  it  was  by  that  coup  that  the  Standard  had  gotten 
he  ready  money  to  pay  for  the  plant  of  the  Empire  Trans- 
[235] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

portation  Company — the  money  to  buy  in  whatever  it  wanted 
— the  money  to  pay  the  fifty  per  cent,  dividend  to  which  one 
of  its  members  testified  in  the  Ohio  Investigation.  They 
remembered  that  while  the  refiners  had  been  selling  refined 
around  thirty  cents  a  gallon  they  had  sold  crude  at  less  than 
four  dollars  a  barrel.  Little  wonder  then  that  they  felt  they 
had  evidence  that  the  Standard  had  actually  done  what  they 
had  always  claimed  it  would  do  if  it  got  hold  of  the  refining 
interests  as  it  planned.  Even  in  the  case  where  certain  large 
producers  had  entered  into  a  partnership  with  the  Standard 
on  condition  that  they  pay  them  prices  for  crude  commen- 
surate with  the  price  of  refined,  these  producers  claimed  the 
agreement  had  not  been  kept.  One  of  these  cases  came  to  light 
in  a  suit  instituted  in  1878.  It  seems  that  some  time  in  Decem- 
ber, 1874,  me  large  oil  company  of  H.  L.  Taylor  and  Company 
sold  one-half  interest  in  its  property  to  the  Standard  Oil  Com- 
pany. The  reason  for  the  sale  the  plaintiffs  stated  in  their 
complaint  to  be  as  follows: 

The  extent  of  their  (the  Standard's)  business  and  control  over  pipe-lines  and  refineries 
had  enabled  them  to  procure,  and  they  had  procured  from  the  railways,  more  favour- 
able terms  for  transportation  than  others  could  obtain.  These  advantages  and  facilities 
placed  it  within  their  power  to  obtain,  and  they  did  obtain,  far  better  and  more  uniform 
prices  for  petroleum  than  could  be  obtained  by  the  plaintiffs.  The  said  organisation 
and  firms,  by  virtue  of  their  monopoly  of  the  business  of  refining  and  transportation 
of  oil,  had  been  at  times  almost  the  only  buyers  in  the  market,  and  at  such  times  had 
been  enabled  to  dictate  and  establish  a  price  for  crude  oil  far  below  its  actual  value, 
as  determined  by  prices  of  refined  oil  at  same  dates,  and  they  thus  obtained  a  large 
share  of  the  profits  which  should  have  fallen  to  the  plaintiff's  and  other  purchasers. 
The  sale  was  made,  and  in  consideration  of  the  foregoing  premises,  and  upon  the 
promise  and  agreement  on  the  part  of  the  defendants  that  the  partnership  thus  formed 
should  have  the  benefit  of  the  advantage  and  facilities  of  the  said  defendants,  and  the 
organisations  and  firms  managed  and  controlled  by  defendants,  in  marketing  its  oil; 
that  the  firm  should  have  to  the  extent  of  its  production  the  advantage  of  the  sales 
of  refined  by  the  defendants  or  said  Standard  Oil  Company,  either  for  present  or  future 
delivery,  so  that  there  should  be  at  no  time  any  margin  or  difference  between  the 
ruling  price  of  refined  oil,  and  the  price  which  defendants  would  pay  the  partnership 

[236] 


THE  CRISIS  OF  1878 

for  the  crude  by  it  produced,  beyond  the  necessary  cost  of  refining.  This  thing  formed 
the  inducement  and  the  larger  part  of  the  consideration  for  the  sale  of  said  property 
to  defendants.  The  amount  actually  received  for  said  interest  was  far  beneath  its 
actual  value,  and  without  the  agreement  on  the  part  of  the  defendants  to  pay  to  the 
partnership  for  its  product  prices  at  all  times  commensurate  with  the  prices  of  refined 
oil,  they  would  not  have  sold  the  said  interest  nor  entered  into  said  partnership. 

The  defendants,  although  requested  to  do  so,  have  not  only  failed,  neglected,  and 
refused  to  comply  with  this  agreement,  but  have,  by  false  and  erroneous  statements, 
misled  the  plaintiffs,  and  induced  them  to  consent  to  the  sale  to  them  and  to  the 
Standard  Oil  Company  of  large  quantities  of  crude  petroleum,  produced  by  the  partner- 
ship at  prices  far  below  its  actual  value,  to  the  great  loss  and  damage  of  the  orators. 
That  on  or  about  December  16,  1876,  refined  was  selling  at  a  price  equivalent  to 
seven  dollars  for  crude  oil,  at  which  time  plaintiffs  called  upon  defendants  for  a  com- 
pliance with  their  agreement,  and  asked  that  they  take  or  purchase  210,000  barrels 
of  the  production  of  the  partnership  at  a  price  commensurate  with  the  price  of  refined 
at  the  time.  This,  defendants  neglected  and  refused  to  do,  and  the  partnership  was 
forced  to  sell  the  same  at  prices  varying  from  three  to  four  dollars,  making  a  loss  to  the 
partnership  upon  this  one  transaction  of  from  #600,000  to  #1,000,000,  for  which  said 
defendants  neglect  and  refuse  to  account. 

That  the  said  defendants  for  themselves,  and  for  the  said  Standard  Oil  Company, 
and  other  organisations  and  firms  aforesaid,  have  since  the  formation  of  the  partnership 
received  from  the  railways  a  rebate  or  drawback  in  the  shape  of  wheelage,  or  otherwise* 
at  times  as  high  as  one  dollar  per  barrel  upon  all  oil  shipped  by  them  to  the  seaboard. 
That  instead  of  using  these  advantages  which  they  possess  for  the  benefit  and  profit  of 
the  partnership,  as  they  covenanted  to  do,  they  have  used  them  against  its  interest  by 
restraining  trade,  preventing  competition,  and  forcing  plaintiffs  to  accept  any  price 
which  defendants,  the  said  Standard  Oil  Company,  or  the  other  organisations  afore- 
said, might  offer  for  their  production.  That  the  amount  of  oil  produced  and  sold  by 
the  partnership  for  the  three  years  beginning  with  the  date  of  its  formation,  and  ending 
December  1,  1877,  was  2,657,830  barrels.  That  the  profits  of  defendants  upon  oil 
refined  by  them  during  said  period,  taking  into  consideration  the  rebates  and  draw- 
backs received  from  the  railways,  have  averaged  at  least  one  dollar  per  barrel  over  and 
Ibove  the  cost  of  refining,  and  at  times  as  high  as  four  and  five  dollars.  That  these 
rofits,  under  the  partnership  agreement  that  no  margin  should  exist  between  crude 
nd  refined  prices,  should  to  the  extent  of  the  production  of  the  partnership  have  been 
aid  by  defendants  to  the  partnership.  That  the  amount  lost  by  the  partnership  and 
ealised  by  the  defendants,  by  reason  of  the  failure  and  refusal  of  said  defendants  to 
[237] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

comply  with  their  agreement,  is  not  less  than  $2,500,000,  for  one-half  of  which  de- 
fendants should  account  to  your  orators,  but  which  they  neglect  and  refuse  to  do. 

Naturally  enough  the  producers  now  pointed  out  that  the 
case  of  the  H.  L.  Taylor  Company  was  a  demonstration  of 
what  they  had  claimed  in  1872,  when  the  South  Improvement 
Company,  alarmed  at  the  uprising,  offered  them  a  contract, 
and  what  they  had  always  claimed  since  when  the  Standard 
offered  contracts  for  oil  on  a  sliding  scale,  viz.,  that  such 
contracts  were  never  meant  to  be  kept;  that  they  were  a  blind 
to  enable  the  Standard  to  make  scoops  such  as  they  had  made 
in  the  winter  of  1876  and  1877. 

Taking  all  these  points  into  consideration — 

First — That  the  Standard  Oil  Company,  like  the  South 
Improvement  Company,  was  a  secret  organisation; 

Second — That  both  companies  were  composed  in  the  main 
of  the  same  parties ; 

Third — That  it  aimed,  like  its  predecessors,  at  getting  entire 
control  of  the  refining  interest; 

Fourth — That  it  used  the  power  the  combination  gave  it  to 
get  rebates  on  its  own  oil  shipments  and  drawbacks  on  the 
shipments  of  other  people; 

Fifth — That  it  arranged  contracts  which  compelled  the 
railroads  to  run  out  all  competition  by  lowering  their 
rates. 

Sixth — That  it  aimed  to  put  up  the  price  of  refined  with- 
out allowing  the  producer  a  share  of  the  profits — 

Taking  all  these  points  into  consideration,  many  of  the  pro- 
ducers, including  the  president  of  the  Petroleum  Producers' 
Union,  B.  B.  Campbell,  and  certain  members  of  his  Coun- 
cil, came  to  the  conclusion  that  as  they  had  sufficient  evi- 
dence against  the  members  of  the  Standard  Combination 
to  insure  conviction  for  criminal  conspiracy,  they  should  pro- 
ceed against  them.  Strenuous  opposition  to  the  proceedings,  as 
hasty  and  ill-advised,  developed  in  the  Council  and  the  Legal 

[238] 


THE  CRISIS  OF  1878 

Committee,  but  the  majority  decided  that  the  prosecution 
should  be  instituted.  Mr.  Scott  and  Mr.  Cassatt  were  omitted 
from  the  proposed  indictment  on  the  ground  that  they  were 
already  weary  of  the  Standard,  and  would  cease  their  illegal 
practices  gladly  if  they  could. 

On  the  29th  day  of  April,  1879,  the  Grand  Jury  of  the 
County  of  Clarion  found  an  indictment  against  John  D. 
Rockefeller,  William  Rockefeller,  Jabez  A.  Bostwick,  Daniel 
O'Day,  William  G.  Warden,  Charles  Lockhart,  Henry  M. 
Flagler,  Jacob  J.  Vandergrift  and  George  W.  Girty.  (Girty 
was  the  cashier  of  the  Standard  Oil  Company.)  There  were 
eight  counts  in  the  indictment,  and  charged,  in  brief,  a  conspir- 
acy for  the  purpose  of  securing  a  monopoly  of  the  business  of 
buying  and  selling  crude  petroleum,  and  to  prevent  others  than 
themselves  from  buying  and  selling  and  making  a  legitimate 
profit  thereby;  a  combination  to  oppress  and  injure  those  en- 
gaged in  producing  petroleum;  a  conspiracy  to  prevent  others 
than  themselves  from  engaging  in  the  business  of  refining 
petroleum,  and  to  secure  a  monopoly  of  that  business  for  them- 
selves; a  combination  to  injure  the  carrying  trade  of  the 
Allegheny  Valley  and  Pennsylvania  Railroad  Companies  by 
perventing  them  from  receiving  the  natural  petroleum  traffic; 
to  divert  the  traffic  naturally  belonging  to  the  Pennsylvania 
carriers  to  those  of  other  states  by  unlawful  means;  and  to 
extort  from  railroad  companies  unreasonable  rebates  and  com- 
missions, and  by  fraudulent  means  and  devices  to  control  the 
market  prices  of  crude  and  refined  petroleum  and  acquire 
unlawful  gains  thereby.* 

Four  of  the  persons  mentioned  in  the  indictment — Messrs. 
O'Day,  Warden,  Lockhart  and  Vandergrift — all  citizens  of 
Pennsylvania,  gave  bail,  and  early  in  June  application  was 
made  to  Governor  Hoyt  of  Pennsylvania  to  issue  a  requisition 

I*  See  Appendix,  Number  34.     Bill  of  particulars  of  evidence  to  be  offered  by  the 
mmonwealth. 
[239] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

before  the  Governor  of  New  York  for  the  extradition  of  the 
other  five  gentlemen. 

With  damaging  testimony  piling  up  day  by  day  in  three 
states,  and  with  an  indictment  for  conspiracy  hanging  over 
the  heads  of  himself  and  eight  of  his  associates,  matters  looked 
gloomy  for  John  D.  Rockefeller  in  the  spring  of  1879.  "The 
good  of  the  oil  business"  certainly  seemed  in  danger. 


[240] 


CHAPTER   EIGHT 
THE   COMPROMISE   OF    1880 

THE  PRODUCERS'  SUIT  AGAINST  ROCKEFELLER  AND  HIS  ASSOCIATES  USED 
BY  THE  STANDARD  TO  PROTECT  ITSELF— SUITS  AGAINST  THE  TRANSPOR- 
TATION COMPANIES  ARE  DELAYED— TRIAL  OF  ROCKEFELLER  AND  HIS 
ASSOCIATES  FOR  CONSPIRACY  POSTPONED  —  ALL  OF  THE  SUITS  WITH- 
DRAWN IN  RETURN  FOR  AGREEMENTS  OF  THE  STANDARD  AND  THE 
PENNSYLVANIA  TO  CEASE  THEIR  PRACTICES  AGAINST  THE  PRODUCERS— 
WITH  THIS  COMPROMISE  THE  SECOND  PETROLEUM  PRODUCERS'  UNION 
COMES  TO  AN  END— PRODUCERS  THEMSELVES  TO  BLAME  FOR  NOT  STAND- 
ING BEHIND  THEIR  LEADERS— STANDARD  AGAIN  ENFORCES  ORDERS  OBJEC- 
TIONABLE TO  PRODUCERS— MORE  OUTBREAKS  IN  THE  OIL  REGIONS- 
ROCKEFELLER  HAVING  SILENCED  ORGANISED  OPPOSITION  PROCEEDS  TO 
SILENCE  INDIVIDUAL  COMPLAINT. 

NO  doubt  the  indictment  of  Mr.  Rockefeller  in 
the  spring  of  1879  seemed  to  him  the  work  of 
malice  and  spite.  By  seven  years  of  persistent  effort 
he  had  worked  out  a  well-conceived  plan  for  con- 
trolling the  oil  business  of  the  United  States.  Another  year 
and  he  had  reason  to  believe  that  the  remnant  of  refiners 
who  still  rebelled  against  his  intentions  would  either  be  con- 
vinced or  dead  and  he  could  rule  unimpeded.  But  here  at  the 
very  threshold  of  empire  a  certain  group  of  people — "people 
with  a  private  grievance,"  "mossbacks  naturally  left  in  the 
lurch  by  the  progress  of  this  rapidly  developing  trade,"  his  col- 
leagues described  them  to  the  Hepburn  Commission — stood 
in  his  way.  "You  have  taken  deliberate  advantage  of  the 
iniquitous  practices  of  the  railroads  to  build  up  a  monopoly," 
they  told  him.  "We  combined  to  overthrow  those  practices  so 

[241] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

far  as  the  oil  business  was  concerned.  You  not  only  refused 
to  support  us  in  this  contention,  you  persuaded  or  forced 
the  railroads  to  make  you  the  only  recipient  of  their  illegal 
favours;  more  than  that,  you  developed  the  unjust  practices, 
forcing  them  into  forms  unheard  of  before.  Not  only  have 
you  secured  rebates  of  extraordinary  value  on  all  your  own 
shipments,  you  have  persuaded  the  railroads  to  give  you 
a  commission  on  the  oil  that  other  people  ship.  You  are 
guilty  of  plotting  against  the  prosperity  of  an  industry." 
And  they  indicted  him  with  eight  of  his  colleagues  for  con- 
spiracy. 

The  evidence  on  which  the  oil  men  based  this  serious 
charge  has  already  been  analysed.  At  the  moment  they  brought 
their  suit  for  conspiracy  what  was  their  situation?  They  had 
several  months  before  driven  the  commonwealth  of  Penn- 
sylvania to  bring  suits  against  four  railroads  operating  within 
its  borders  and  against  the  Standard  pipe-lines  for  infringing 
their  duties  as  common  carriers.  Partial  testimony  had  been 
taken  in  the  case  against  the  Pennsylvania  road  and  in  that 
against  the  United  Pipe  Lines.  These  suits,  though  far  from 
finished,  had  given  the  Producers'  Union  the  bulk  of  the 
proof  on  which  they  had  secured  the  indictment  of  the  Stand- 
ard officials  for  conspiracy.  Now,  since  the  railroads  and 
the  pipe-lines  were  the  guilty  ones — that  is,  as  it  was  they 
who  had  granted  the  illegal  favours,  and  as  they  were  the 
only  ones  that  could  surely  be  convicted,  it  seems  clear  that 
the  only  wise  course  for  the  producers  would  have  been  to 
prosecute  energetically  and  exclusively  these  first  suits.  But 
evident  as  the  necessity  for  such  persistency  was,  and  just  after 
Mr.  Cassatt  had  startled  the  public  and  given  the  Union 
material  with  which  it  certainly  in  time  could  have  compelled 
the  commonwealth  to  a  complete  investigation,  the  producers 
interrupted  their  work  by  bringing  their  spectacular  suit  for 
conspiracy — a  suit  which  perhaps  might  have  been  properly 

[242] 


THE  COMPROMISE  OF  1880 

instituted  after  the  others  had  been  completed,  but  which, 
introduced  now,  completely  changed  the  situation,  for  it  gave 
the  witnesses  from  whom  they  were  most  anxious  to  hear  a 
loophole  for  escape. 

For  instance,  the  officials  of  the  Standard  pipe-lines  had 
been  instructed  to  appear  on  the  14th  of  May,  1879,  to 
answer  questions  which  earlier  in  the  trial  they  had  refused 
to  answer  "on  advice  of  counsel."  Now  the  president  of  the 
United  Pipe  Lines,  J.  J.  Vandergrift,  and  the  general  man- 
ager, Daniel  O'Day,  were  both  included  in  the  indictment 
for  conspiracy.  The  evening  before  the  interrogatory  the 
producers'  counsel  received  a  telegram  from  the  attorney- 
general  of  the  state,  announcing  that  the  pipe-line  people 
were  complaining  that  the  testimony  which  they  would  be 
called  on  to  give  on  the  morrow  would  be  used  against  them 
in  the  conspiracy  trial — as  it  undoubtedly  would  have  been — 
and  that  he  thought  it  only  fair  that  their  hearing  be  post- 
poned until  after  that  suit.  And  so  the  defendants  gained  time 
— the  chief  desideratum  of  defendants  who  do  not  wish  to 
fight. 

Soon  after,  the  conspiracy  case  was  again  used  to  excellent 
advantage  by  the  Standard  people  in  the  investigation  which 
was  being  conducted  in  New  York  before  the  Hepburn  Com- 
mission. Mr.  Bostwick,  the  Standard  Oil  buyer,  whose  order 
to  buy  immediate  shipment  oil  only  at  a  discount  had  been 
one  of  the  oil  men's  chief  grievances  for  a  year  and  a  half, 
was  summoned  as  a  witness;  but  Mr.  Bostwick  too  was  under 
indictment  for  conspiracy,  and  when  the  examiners  began 
to  put  questions  to  him  which  the  producers  were  eager  to 
have  answered,  he  asked:  "How  can  I,  a  man  soon  to  be  tried 
for  conspiracy,  be  expected  to  answer  these  questions?  I  shall 
incriminate  myself."  He  was  sustained  in  his  plea,  and  about 
all  the  Hepburn  Commission  got  out  of  him  was,  "I  refuse  to 
answer,  lest  I  incriminate  myself."  This,  then,  was  the  first 

[243] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 
fruit  of  the  producers'  hasty  and  vindictive  suit.  It  had  shut 
the  mouths  of  the  important  Standard  witnesses. 

Discouraging  as  this  discovery  was,  however,  there  was  no 
reason  why  the  suits  against  the  railroads  should  not  have 
been  pushed  through,  and  the  testimony  the  officials  unques- 
tionably could  be  made  to  give,  now  that  Mr.  Cassatt  had 
set  the  pace,  have  been  obtained.  But  the  Producers'  Union 
had  lost  sight  for  the  moment  of  the  fact  that  the  fundamental 
difficulty  in  the  trouble  was  the  illegal  discrimination  of  the 
common  carriers.  The  Union  was  so  much  more  eager  to 
punish  Mr.  Rockefeller  than  it  was  to  punish  the  railroads, 
that  in  bringing  the  suit  for  conspiracy  it  was  even  guilty 
of  leniency  toward  the  officials  of  the  Pennsylvania.  Certainly, 
if  there  was  to  be  an  indictment  for  conspiracy,  all  the  sup- 
posed conspirators  should  have  been  included.  It  was  by  dis- 
criminations clearly  contrary  to  the  constitution  of  the  state 
that  the  Pennsylvania  Railroad  had  made  it  possible  for  Mr. 
Rockefeller  to  achieve  his  monopoly  in  Pennsylvania.  The 
Union  had  proof  of  these  rebates,  but  they  let  off  Mr.  Scott 
and  Mr.  Cassatt  because  "they  professed  the  greatest  desire 
to  get  rid  of  Standard  domination,  and  were  loudly  asserting 
that  they  had  been  victimised  and  compelled  at  times  to  carry 
oil  freights  at  less  than  cost."  *  Evidently  the  fate  of  the  settle- 
ment the  oil  men  had  made  seven  years  before  with  Mr. 
Scott  and  the  presidents  of  the  other  oil-bearing  roads  had 
been  forgotten.  Naturally  enough  the  railroads  took  advan- 
tage of  these  signs  of  leniency  on  the  part  of  the  producers, 
and  brought  all  their  enormous  influence  to  bear  on  the  state 
authorities  to  delay  hearings  and  bring  about  a  settlement. 
The  Pennsylvania  secured  delays  up  to  December,  1879,  and 
then  the  Governor  ordered  the  attorney-general  to  stop  pro- 
ceedings against  the  road  until  the  testimony  had  been  taken 

*  "A  History  of  the  Organisation,  Purposes  and  Transactions  of  the  General  Council 
of  the  Petroleum  Producers'  Unions,"  1880. 

[244] 


THE  COMPROMISE  OF  1880 

in  the  other  four  cases;  that  is,  in  the  cases  against  (1)  the 
United  Pipe  Lines;  (2)  the  Lake  Shore  and  Michigan  South- 
ern; (3)  the  Dunkirk,  Allegheny  and  Pittsburg,  and  (4)  the 
Atlantic  and  Great  Western.  It  was  a  heavy  blow  to  the 
Union,  for  at  the  moment  its  hands  were  tied  by  the  conspir- 
acy case,  as  far  as  the  United  Pipe  Lines  were  concerned,  and 
the  three  railroads  were  foreign  corporations,  only  having 
branches  in  Pennsylvania,  and  accordingly  very  difficult  to 
reach.  The  testimony  could  have  been  obtained,  however,  if  the 
Union  had  been  undivided  in  its  interests.  It  would  have  been 
done,  of  course,  if  the  state  authorities  had  been  willing  to  do 
what  was  their  obvious  duty.  But  the  state  authorities  really 
asked  nothing  better  than  to  escape  further  prosecution  of 
the  railroads.  The  administration  was  Republican,  the  Gov- 
ernor being  Henry  M.  Hoyt.  Mr.  Hoyt  had  been  elected  in 
the  fall  of  1878  and  so  had  inherited  the  suits  from  Governor 
Hartranft.  He  was  pledged,  however,  to  see  them  through, 
for  before  the  election  the  Producers'  Union  had  sent  him  the 
following  letter: 

"Titusville,  October  23,  1878. 
"  Henry  M.  Hoyt: 

Sir — During  the  past  few  months,  the  Association  of  Producers  of  Petroleum, 
long  oppressed  in  their  immediate  business  and  kindred  industries  by  the  persistent 
disregard  of  law  by  certain  great  corporations  exercising  their  powers  within  the  state 
of  Pennsylvania,  and  daily  subjected  to  incalculable  loss  by  a  powerful  and  corrupt 
combination  of  these  corporations  and  individuals,  have  appealed  to  the  executive, 
legislative  and  judiciary  branches  of  the  government  for  relief  and  protection. 

The  questions  which  they  raise  for  the  consideration  of  the  authorities  and  the  people 
affect  not  only  themselves  but  the  whole  public,  not  only  the  particular  calling  in 
which  they  are  engaged,  but  nearly  all  kinds  of  business  in  the  commonwealth  and 
the  nation. 

The  Legislature  has  not  responded  to  the  demands  made  that  the  provisions  of  the 
constitution  shall  be  speedily  enforced  by  appropriate  legislation. 

The  present  executive  has  caused  proceedings  to  be  instituted  in  the  courts  looking 
to  relief,  if  it  can  be  had  by  process  of  law,  and  these  are  still  pending,  while  others 
may  be  begun. 

In  view  of  the  grave  duties  which  will  devolve  upon  you,  should  you  be  chosen  to 

[245] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  high  office  to  which  you  aspire,  in  behalf  of  the  Petroleum  Producers'  Association 
I  ask  from  you  a  definite  expression  of  your  views  upon  the  following  subjects: 

First — Will  you,  if  elected,  recommend  to  the  Legislature  the  passage  of  laws  to 
carry  into  effect  the  third  and  twelfth  sections  of  the  sixteenth,  and  the  third,  seventh 
and  twelfth  sections  of  the  seventeenth  articles  of  the  constitution  of  Pennsylvania  ? 

Second — If  such  laws  should  be  passed  as  referred  to  in  the  preceding  question, 
will  you,  as  Governor,  approve  them,  if  constitutional  ? 

Third — Will  you,  as  Governor,  recommend  and  approve  such  other  remedial  legisla- 
tion as  may  be  required  to  cure  the  evils  set  forth  in  a  memorial  to  Governor  Hartranft 
of  August  15,  1878  ? 

Fourth — In  the  selection  of  the  law  officer  of  the  state,  will  you,  if  elected,  secure 
the  services  of  one  who  will  prosecute  with  vigour  all  proceedings  already  commenced 
or  that  may  be  instituted,  having  in  view  the  subjection  of  corporations  to  the  laws 
of  the  land  ?  Very  respectfully, 

A.  N.  Perrin, 
Chairman  Committee" 

Governor  Hoyt's  answers  were  eminently  satisfactory: 

"There  were  provisions  in  the  constitution,"  he  wrote,  "intended  to  compel  the  rail- 
roads and  canal  companies  of  the  state  to  the  performance  of  their  duties  as  common 
carriers  with  fairness  and  equality,  without  discrimination,  to  all  persons  doing  business 
over  their  lines.  This  policy  is  just  and  right. 

"If  called  to  a  position  requiring  official  action,  I  would  recommend  and  approve 
any  legislation  necessary  and  appropriate  to  carry  into  effect  the  sections  of  the  con- 
stitution referred  to. 

"  It  would  be  my  duty,  if  elected,  to  see  that  no  citizen,  or  class  of  citizens  even,  were 
subjected  to  hardship  or  injustice  in  their  business,  by  illegal  acts  of  corporations  or 
others,  where  relief  lay  within  executive  control.  Any  proper  measures  or  legislation 
which  would  effectually  remedy  the  grievances  set  forth  in  the  memorial  addressed 
to  Governor  Hartranft  would  receive  my  recommendation  and  approval. 

"It  would  be  my  duty,  if  elected,  to  select  only  such  officers  as  would  enforce  obe- 
dience to  the  constitution  and  laws,  both  by  corporations  and  individuals,  without 
fear  or  favour,  and  all  such  officers  would  be  held  by  me  to  strict  accountability  for 
the  full  and  prompt  discharge  of  all  their  official  duties." 

Governor  Hoyt  had  indeed  begun  the  suits,  all  of  the  testi- 
mony in  regard  to  the  Pennsylvania  having  been  taken  in  his 
administration.  This  testimony  must  have  proved  to  him  that 
the  transgressions  of  the  road  had  been  far  more  flagrant  than 

[246] 


THE  COMPROMISE  OF  1880 

anyone  dreamed  of — that  they  had  amounted  simply  to  driv- 
ing certain  men  out  of  business  in  order  to  build  up  the  busi- 
ness of  certain  other  men.  His  evident  duty,  as  his  letter  to 
the  producers  shows  clearly  enough  that  he  realised,  was  to 
push  the  suits  against  the  railroads  even  if  the  oil  men  entirely 
withdrew,  but  instead  of  that  it  became  evident  in  the  spring 
that  he  was  using  every  opportunity  to  delay.  Indeed,  one 
reason  the  producers  gave  for  bringing  the  conspiracy  suit 
was  that  it  would  give  the  state  authorities  a  scapegoat;  that 
they  would  gladly  act  vigorously  against  the  Standard  if  they 
were  let  off  from  prosecuting  the  Pennsylvania.  Governor 
Hoyt  now  availed  himself  fully  of  the  vacillation  of  the  Union 
toward  the  railroads,  using  it  as  an  excuse  for  not  prosecuting 
the  railroad  cases. 

But  if  the  producers  were  half-hearted  toward  the  rail- 
roads they  were  whole-hearted  enough  toward  the  Standard. 
In  spite  of  the  fact  that  they  had  gotten  in  their  own  way, 
so  to  speak,  by  bringing  their  conspiracy  suit,  they  felt  con- 
vinced that  they  had  material  enough  to  win  it  on,  and  they 
sought  the  extradition  of  the  non-residents  who  had  been 
indicted. 

Early  in  June  Governor  Hoyt  was  called  upon  to  issue  a 
requisition  for  the  extradition  of  John  D.  Rockefeller,  Wil- 
liam Rockefeller,  H.  M.  Flagler,  J.  A.  Bostwick,  Daniel 
O'Day,  Charles  Pratt  and  G.  W.  Girty.  A  full  agreement 
was  made  before  the  state  officials,  but  a  decision  was  deferred 
repeatedly.  Finally,  worn  out  with  waiting,  Mr.  Campbell, 
in  a  telegram  to  the  Governor  on  July  29,  threatened,  if 
there  was  longer  delay,  to  make  his  request  for  extradition 
through  the  public  press.  The  answer  from  Harrisburg  was 
that  the  attorney-general  was  sick  and  could  not  attend  to 
the  matter.  Mr.  Campbell  wired  back  that  he  was  tired  of 
"addition,  division,  and  silence,"  and  he  sent  out  the  follow- 

Iing  letter: 
[247] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

"Fairfield,  July  31,  1879. 
"To  His  Excellency  Henry  M.  Hoyt, 

Governor  of  the  Commonwealth  of  Pennsylvania. 
Sir — On  behalf  of  the  producers  of  oil,  whom  I  represent  as  president  of  their 
General  Council,  I  most  respectfully  ask  a  decision  at  your  hands,  of  the  requisition 
on  the  Governor  of  the  state  of  New  York,  for  the  surrender  of  the  officers  of  the  Stand- 
ard Oil  Company,  indicted  by  the  Grand  Jury  of  Clarion  County,  and  now  believed 
to  be  within  the  limits  of  the  state  of  New  York. 

The  case  was  exhaustively  argued  before  you,  more  than  four  weeks  ago,  and  the 
great  oil  interest  which  I  have  the  honour  to  represent  has  a  right  to  a  prompt  decision 
on  this  vital  question.  If  these  parties — who  for  their  own  profit  and  its  ruin  control 
Pennsylvania's  most  valuable  product,  and  compel  its  greatest  carrier  to  undertake 
their  warfare  and  to  do  their  bidding  at  the  sacrifice  of  its  innocent  stockholders — can, 
under  the  plea  of  being  'aliens,'  defy  the  law  of  Pennsylvania  and  laugh  at  our  im- 
potent attempts  to  reach  them,  the  sooner  it  is  known  the  better.  It  is  possible  that 
if  we  are  denied  protection  within  the  limits  of  our  commonwealth,  we  may  obtain  jus- 
tice by  appealing  to  the  courts  of  a  sister  state,  where  at  least  the  defendants  will  be 
obliged  to  admit  that  they  are  residents. 

Your  obedient  servant, 

B.  B.  Campbell, 
President  of  Producers*  Council." 

The  Governor  remained  obdurate,  nor  was  the  request  ever 
granted.  In  a  message  sent  out  in  January,  1881,  Governor 
Hoyt  gave  a  review  of  the  case — as  he  was  compelled  to  do, 
so  great  was  the  popular  criticism  of  his  course  in  not  push- 
ing the  suits  and  in  refusing  the  request  for  extradition — in 
which  he  attributed  his  refusal  to  the  negotiations  begun 
between  the  railroads  and  the  Producers'  Union. 

"The  details  of  these  negotiations,  of  course,  need  not,  and  did  not,  reach  the  office 
of  the  executive  department,"  he  said.  "As  a  part  of  them,  however,  requests  were 
presented  in  the  interest  of  the  petitioners  (the  Producers'  Union)  to  the  Governor,  not 
to  issue  the  requisition,  followed  again  by  requests  that  they  be  allowed  to  go  out. 
Finding  that  the  highest  process  of  the  commonwealth  was  being  used  simply  as  lever- 
age for  and  against  the  parties  to  these  negotiations  between  contending  litigants,  and 
that,  however  entire  and  perfect  might  have  been  the  good  faith  in  which  the  criminal 
proceedings  in  Clarion  County  had  been  commenced,  they  were  being  regarded  and 
treated  as  a  mere  make-weight  in  the  stages  of  private  diplomacy,  I  deemed  it  my 
duty,  in  the  exercise  of  a  sound  discretion,  to  suspend  action  on  the  requisitions." 

[248] 


E.    G.    PATTERSON 

From  1872  to  1880  the  chief  advocate  in  the  Oil 
Kegion  of  an  interstate  commerce  law.  Assisted  in 
drafting  the  bills  of  1876  and  1880.  Abandoned 
the  independent  interests  at  the  time  of  the  com- 
promise of  1880. 


ROGER   SHERMAN 

Chief  counsel  of  the  Petroleum  Producers'  Union 
from  1878  to  1880.  From  1880  to  1885  counsel  for 
the  Standard  Oil  Company.  From  1885  to  his 
death  in  1893  counsel  of  the  allied  independents. 


WMBIMHIMWIIIIIIIIIIIWim IBM 


BENJ.    B.    CAMPBELL 

President  of  the  Petroleum  Producers'  Union 
from  1878  to  1880.  Independent  refiner  and 
operator  until  his  death. 


JOSIAH   LOMBARD 
Prominent  independent  refiner  of  N.  Y. 


City, 


whose  firm  was  the  only  one  to  keep  its  contract 
with  the  Tidewater  Pipe  Line  Company  in  1880. 


V* 


THE  COMPROMISE  OF  1880 

The  writer  has  examined  all  the  private  correspondence 
which  passed  at  this  time  between  the  litigants,  but  finds  no 
proof  of  Governor  Hoyt's  statement  that  the  Union  at  one  time 
ceased  its  demands  for  Mr.  Rockefeller's  extradition. 

The  conspiracy  suit  had  been  set  for  the  August  session 
of  the  Clarion  County  court.  When  August  came  the  Stand- 
ard sought  a  continuance,  and  it  was  granted.  The  delay 
did  not  in  any  way  discourage  the  producers,  and  when  Mr. 
Rockefeller  became  convinced  of  this  he  tried  conciliation. 
"Come,  let  us  reason  together,"  has  always  been  a  favourite 
proposition  of  Mr.  Rockefeller.  He  would  rather  persuade 
than  coerce,  rather  silence  than  fight.  He  had  been  making 
peace  overtures  ever  since  the  suits  began.  The  first  had  been 
in  the  fall  of  1878,  soon  after  they  were  instituted,  when  he  sent 
the  following  letter  to  Captain  Vandergrift: 

"  Captain  J.  J.  Vandergrift: 

My  dear  Sir — We  are  now  prepared  to  enter  into  a  contract  to  refine  all  the  petroleum 
that  can  be  sold  in  the  markets  of  the  world  at  a  low  price  for  refining.  Prices  of  refined 
oil  to  be  made  by  a  joint  committee  of  producers  and  refiners,  and  the  profits  to  be  de- 
termined by  these;  profits  to  be  divided  equitably  between  both  parties.  This  joint 
interest  to  have  the  lowest  net  rates  obtainable  from  railroads.  If  your  judgment  ap- 
proves, you  may  consult  some  of  the  producers  upon  this  question.  This  would  proba- 
bly require  the  United  Pipe  Lines  to  make  contracts  and  act  as  a  clearing-house  for 
both  parties. 

Very  respectfully  yours, 

J.  D.  Rockefeller." 

Captain  Vandergrift  handed  the  letter  to  the  executive 

committee  of  the  Producers'  Union.  It  was  returned  to  him 

without  a  reply.  The  producers  had  tried  an  arrangement  of 

this  kind  with  Mr.  Rockefeller's  National  Refiners,  Associ- 

ition  in  the  winter  of  1872  and  1873,  an(*  ll  hac*  failed.  The 

ifiners  had  thrown  up  their  contract  when  they  found  they 

:ould  get  all  the  oil  they  wanted  at  a  lower  price  than  they 

tad  contracted  to  pay  the  Producers'  Union,  from  men  who 

[249] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

had  not  gone  into  that  organisation.  The  oil  country  was 
familiar,  too,  with  the  case  of  the  H.  L.  Taylor  Company, 
whose  complaint  against  the  Standard  was  referred  to  in  the 
last  chapter.  Contracts  of  that  sort  were  never  meant  to  beJ 
kept,  they  declared.  They  were  meant  as  "sops,  opiates."  In 
November,  1878,  after  the  testimony  which  had  been  brought 
out  by  the  suit  against  the  United  Pipe  Lines  had  been  pretty 
well  aired  in  the  New  York  Sun  and  other  papers,  and  one 
or  two  private  suits  against  the  railroads  were  creating  a 
good  deal  of  public  discussion,  an  effort  to  secure  a  conference 
between  the  representatives  of  the  Union  and  the  Standard 
officials  was  made.  The  Union  refused  to  go  into  it  officially. 
A  meeting  was  held,  however,  in  New  York  on  November 
29,  at  which  several  well-known  oil  men  were  present.  It 
was  announced  to  the  press  in  advance  that  it  was  to  be  an 
important  but  secret  meeting  between  the  oil  producers,  refin- 
ers and  Standard  men ;  that  its  object  was  to  settle  all  griev- 
ances, and  to  secure  a  withdrawal  of  the  impending  suits.  As 
soon  as  the  news  of  this  proposed  meeting  reached  the  Oil 
Regions,  the  officials  of  the  Union  promptly  denied  their 
connection  with  it. 

Although  these  early  efforts  to  get  a  wedge  into  the  Pro- 
ducers' Union  and  thus  secure  a  staying  of  the  suits  had  no 
results,  the  Standard  was  not  discouraged — it  never  is :  there 
is  no  evidence  in  its  history  that  it  knows  what  the  word  means. 
Not  being  able  to  handle  the  Union  as  a  whole,  the  Standard 
began  working  on  individuals.  By  March,  1879,  the  idea  of  a 
compromise  had  become  particularly  strong  in  Oil  City. 
Indeed,  one  of  the  several  reasons  advanced  for  bringing  the 
conspiracy  suits  was  that  such  a  proceeding  would  defeat  the 
efforts  the  Oil  City  branch  were  making  to  bring  about  a  settle 
ment  with  Mr.  Rockefeller.  Accordingly,  when  it  became 
apparent  to  Mr.  Rockefeller  in  the  fall  of  1879  that  the  pro- 
ducers meant  to  fight  through  the  conspiracy  suit,  thoug 

[250] 


THE  COMPROMISE  OF  1880 

they  might  dally  over  the  others,  he  notified  Roger  Sherman, 
counsel  for  the  Union,  that  he  wished  to  lay  before  him  a 
proposition  looking  to  a  settlement.  The  president,  Mr.  Camp- 
bell, was  in  favour  of  receiving  the  proposition.  "I  have  no 
idea  they  will  present  anything  we  can  accept,"  he  wrote  Mr. 
Sherman.  "Still  it  will  furnish  a  first-rate  gauge  to  test  how 
badly  they  are  scared."  And  the  Standard  was  told  that  the 
Union  would  consider  what  they  had  to  offer.  uBut  it  is  a 
serious  question — this  of  settlement,"  replied  Mr.  Rockefeller. 
"Our  trial  is  set  for  October  28.  We  cannot  get  ready  for 
that  and  prepare  a  proposition  too.  Why  not  postpone  the 
trial?"  This  was  done — December  15  being  set.  But  no  propo- 
sition was  made  to  the  producers  for  over  six  weeks — then 
they  were  asked  to  meet  the  Standard  men  on  November  29 
in  New  York  City.  Piqued  at  the  delay,  the  producers  in- 
formed the  Standard  that  they  could  no  longer  consider 
their  proposition  and  that  the  trial  would^be  pushed. 

But  again  the  Standard  secured  delay — this  time  by  peti- 
tioning that  the  case  be  argued  before  the  Supreme  Court 
of  the  state.  They  declared  that  such  was  the  state  of  public 
feeling  in  Clarion  County  that  they  could  not  obtain  justice 
there.  They  charged  the  judges  with  bias  and  prejudice, 
declared  secret  societies  were  working  against  them,  and 
called  attention  to  the  civil  suits  which  were  still  hanging  fire. 
Over  this  petition  serious  trouble  arose  in  court — there  was  a 
wrangle  between  the  judge  and  the  Standard's  counsel.  The 
newspapers  took  it  up — the  whole  state  divided  itself  into 
camps,  and  the  case  was  again  postponed,  this  time  until  the 
first  of  the  year.  Postponement  obtained,  compromise  was 
again  proposed  upon  the  basis  of  abandonment  of  all  those 
methods  of  doing  business  which  the  producers  claimed  in- 
jured them,  and  as  a  mark  of  their  sincerity  the  United  Pipe 
Lines  on  December  24,  1879,  issued  an  order  announcing  the 
abandonment  of  immediate  shipment  throughout  the  region. 

[251] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

A  meeting  between  the  legal  advisers  of  the  two  parties  to 
discuss  the  proposed  terms  was  arranged  for  January  7,  1880, 
at  the  Fifth  Avenue  Hotel  in  New  York  City — the  very  time 
to  which  the  trial  of  the  case  for  conspiracy  had  been  post- 
poned. It  was  hardly  to  be  expected  that  when  such  negoti- 
ations were  going  on  in  New  York  the  trial  in  Clarion  County 
would  be  pushed  very  briskly.  It  was  not.  There  was  a  hitch 
again,  and  for  the  fourth  time  proceedings  were  stayed.  The. 
conferences,  however,  went  on. 

These  negotiations  with  the  Standard  continued  for  a 
month,  and  then,  early  in  February,  Mr.  Campbell,  the  presi- 
dent of  the  Union,  called  a  meeting  of  the  Grand  Council 
for  February  19,  1880,  in  Titusville,  Pennsylvania.  For  several 
weeks  the  Oil  Regions  had  known  that  President  Campbell 
and  Roger  Sherman,  the  leading  lawyer  of  the  Union,  were 
in  conference  with  the  Standard  officials.  It  was  rumoured 
that  they  were  arranging  a  compromise,  and  it  was  suspected 
that  the  meeting  now  called  was  to  consider  the  terms.  Natu- 
rally the  proposition  to  be  made  was  looked  for  with  suspicion 
and  curiosity.  The  meeting  was  the  largest  the  Grand  Council 
had  held  for  many  months.  It  was  supposed  to  be  secret,  like 
all  gatherings  of  the  Union,  but  before  the  first  session  was 
over,  the  word  spread  over  the  Oil  Regions  that  Mr.  Campbell 
had  brought  to  the  meeting  contracts  with  both  Mr.  Rocke- 
feller and  Mr.  Scott,  and  that  they  were  receiving  harsh  criti- 
cism from  the  Grand  Council.  The  very  meagre  accounts 
which  exist  of  this  gathering,  historic  in  oil  annals,  show  that 
it  was  one  of  the  most  exciting  which  was  ever  held  in  the 
country,  and  one  can  well  believe  this  when  one  considers  the 
bitter  pill  the  council  was  asked  to  swallow  that  day.  Mr. 
Campbell  began  the  session  by  reporting  that  all  the  suits  at 
which  they  had  been  labouring  for  nearly  two  years  had  been 
withdrawn,  and  that  in  return  for  their  withdrawal  the  Stand- 
ard and  the  Pennsylvania  Railroad  officials  had  signed  con- 

[252] 


THE  COMPROMISE  OF  1880 

tracts  to  cease  certain  of  the  practices  of  which  the  producers 
complained. 

The  Standard  contract,  which  Mr.  Campbell  then  presented, 
pledged  Mr.  Rockefeller,  and  some  sixteen  associates,  whose 
names  were  attached  to  the  document,  to  the  following  policy: 

1.  They  would  hereafter  make  no  opposition  to  an  entire 
abrogation  of  the  system  of  rebates,  drawbacks  and  secret  rates 
of  freight  in  the  transportation  of  petroleum  on  the  railroads. 

2.  They  withdrew  their  opposition  to  secrecy  in  rate  mak- 
ing— that  is,  they  promised  that  they  would  not  hereafter 
receive  any  rebate  or  drawback  that  the  railroad  company 
was  not  at  liberty  to  make  known  and  to  give  to  other  shippers 
of  petroleum. 

'3.  They  abandoned  entirely  the  policy  which  they  had  been 
pursuing  in  the  management  of  the  United  Pipe  Lines — that 
is,  they  promised  that  there  should  be  no  discrimination  what- 
ever hereafter  between  their  patrons;  that  the  rates  should 
be  reasonable  and  not  advanced  except  on  thirty  days'  notice; 
that  they  would  make  no  difference  between  the  price  of  crude 
in  different  districts  excepting  such  as  might  be  properly  based 
upon  the  difference  in  the  quality  of  the  oil ;  that  they  would 
receive,  transport,  store  and  deliver  all  oil  tendered  to  them, 
up  to  a  production  of  65,000  barrels  a  day.  And  if  the  produc- 
tion should  exceed  that  amount  they  agreed  that  they  would 
not  purchase  any  so-called  "immediate  shipment"  oil  at  a 
discount  on  the  price  of  certificate  oil. 

4.  They  promised  hereafter  that  when  certificates  had  been 
given  for  oil  taken  into  the  custody  of  the  pipe-lines,  the 
transfer  of  these  certificates  should  be  considered  as  a  delivery 
of  the  oil,  and  the  tankage  of  the  seller  would  be  treated  as 


:ree.* 


Mr.  Rockefeller  also  agreed  in  making  this  contract  to  pay 

*  See  Appendix,  Number  35.  Contract  of  Petroleum  Producers'  Union  with  Stand- 
rd  Combination. 

[253] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  Producers'  Union  $40,000  to  cover  the  expense  of  their 
litigation.  In  return  for  this  money  and  for  the  abandonment  of 
secret  rebates  and  of  the  pipe-line  policy  to  which  he  had  held 
so  strenuously,  what  was  he  to  receive?  He  was  not  to  be 
tried  for  conspiracy.  And  that  day,  after  the  contract  had 
been  presented  to  the  Grand  Council,  Mr.  Campbell  sent  the 
following  telegram : 

"Titusville,  February  19,  1880. 
*  To  His  Excellency  Henry  M.  Hoyt, 

Governor  of  the  Commonwealth  of  Pennsylvania. 
Sir — As  prosecutor  in  the  case  of  the  Commonwealth  vs.  J.  D.  Rockefeller,  Number 
25,  April  Sessions  of  Clarion  County,  I  consent  to  the  withdrawal  of  the  requisition 
asked  of  you  for  extradition  of  J.  D.  Rockefeller  et  al.y  the  same  having  been  in  your 
hands  undecided  since  July  last  and  a  nolle  prosequi  having  been  entered  by  leave 
of  Court  of  Clarion  County  in  the  case,  and  I  will  request  William  L.  Hindman,  the 
prosecuting  attorney,  to  forward  a  formal  withdrawal. 

Your  obedient  servant, 

B.  B.  Campbell." 

The  contract  with  the  Pennsylvania  which  was  signed  by 
Mr.  Scott  agreed,  in  consideration  of  the  withdrawal  of  the  suit 
against  the  road,  to  the  following  policy: 

1.  That  it  would  make  known  to  all  shippers  all  rates  of 
freight  charged  upon  petroleum.  [This  was  an  abolition  of 
secret  rates.] 

2.  If  any  rates  of  freight  were  allowed  one  shipper  as 
against  another,  on  demand  that  rate  was  to  be  made  known. 

3.  There  should  be  no  longer  any  discrimination  in  the 
allotment  and  distribution  of  cars  to  shippers  of  petroleum. 

4.  Any  rebate  allowed  to  a  large  shipper  was  to  be  reason- 
able.* 

There  were  both  humiliation  and  bitterness  in  the  Council 
when  the  report  was  read — humiliation  and  bitterness  that 

*  See  Appendix,  Number  36.    Agreement  between  B.  B.  Campbell  and  the  Penn' 
sylvania  Railroad  Company. 

[254] 


THE  COMPROMISE  OF  1880 

after  two  years  of  such  strenuous  fighting  all  that  was  achieved 
was  a  contract  which  sacrificed  what  everybody  knew  to  be 
the  fundamental  principle,  the  principle  which  up  to  this 
point  the  producers  had  always  insisted  must  be  recognised 
in  any  negotiation — that  the  rebate  system  was  wrong  and 
must  not  be  compromised  with.  Hard  speeches  were  made, 
and  Mr.  Campbell's  head  was  bowed  more  than  once  while 
big  tears  ran  down  his  cheeks.  He  had  worked  long  and  hard. 
Probably  most  of  the  members  of  the  Grand  Council  who 
were  present  had  a  consciousness  that  no  one  of  them  had 
done  anywhere  near  what  Mr.  Campbell  had  done  toward 
prosecuting  their  cause,  and  though  they  might  object  to  the 
compromise,  they  could  not  blame  him,  knowing  all  the  diffi- 
culties which  had  been  put  in  the  way.  So  they  accepted  the 
report,  thanking  him  for  his  fidelity  and  energy,  but  not  fail- 
ing to  express  their  disapproval  of  the  reservation  in  regard 
to  the  rebate  system.  They  ended  their  meeting  by  a  resolu- 
tion bitterly  condemning  the  courts,  the  state  administration 
at  Harrisburg,  and  corporations  in  general : 

"We  declare  that  by  the  inefficiency  and  weakness  of  the  secretary  of  internal  affairs 
in  the  year  1878;  by  the  interposition  on  more  than  one  occasion  of  the  attorney-gen- 
eral in  1879,  by  which  the  taking  of  testimony  was  prevented;  by  the  failure  of  the  pres- 
ent government  for  many  months,  either  to  grant  or  deny  the  requisition  for  criminals 
indicted  for  crime,  within  the  commonwealth  of  Pennsylvania,  fugitives  to  other 
states;  and  by  the  interference  of  some  of  the  judges  of  the  Supreme  Court,  by  an 
extraordinary  and,  according  to  the  best  legal  judgment  of  the  land,  unlawful  proceed- 
ing, by  which  the  trial  of  an  indictment  for  misdemeanour  pending  in  a  local  court  was 
delayed  and  prevented,  the  alarming  and  most  dangerous  influence  of  powerful  cor- 
porations has  been  demonstrated.  While  we  accept  the  inevitable  result  forced  upon  us 
by  these  influences,  we  aver  that  the  contest  is  not  over  and  our  objects  not  attained, 
but  we  all  continue  to  advocate  and  maintain  the  subordination  of  all  corporations  to 
the  laws,  the  constitution,  and  the  will  of  the  people,  however  and  whenever  expressed; 
that  the  system  of  freight  discrimination  by  common  carriers  is  absolutely  wrong  in 
principle,  and  tends  to  the  fostering  of  dangerous  monopolies;  and  that  it  is  the  duty 
of  the  government,  by  legislation  and  executive  action,  to  protect  the  people  from 
their  growing  and  dangerous  power." 

[25s] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

And  with  this  resolution  the  second  Petroleum  Producers' 
Union  formed  to  fight  Mr.  Rockefeller  came  to  an  end. 

By  the  morning  of  February  20  the  Oil  Regions  knew 
of  the  compromise.  The  news  was  received  in  sullen  anger. 
It  was  due  to  the  cowardice  of  the  state  officials,  the  corrupt- 
ing influence  of  corporations,  the  oil  men  said.  They  blamed 
everybody  but  themselves,  and  yet  if  they  had  done  their 
duty  the  suits  would  never  have  been  compromised.  The  sim- 
ple fact  is  that  the  mass  of  oil  men  had  not  stood  by  their 
leaders  in  the  hard  fight  they  had  been  making.  These  leaders, 
Mr.  Campbell  the  president,  Mr.  Sherman  the  chief  counsel, 
and  Mr.  Patterson  the  head  of  the  legislative  committee,  had 
given  almost  their  entire  time  for  two  years  to  the  work  of  the 
Union.  The  offices  of  Mr.  Campbell  and  Mr.  Patterson  were 
both  honorary,  and  they  had  both  often  used  their  private 
funds  in  prosecuting  their  work.  Mr.  Sherman  gave  his  ser- 
vices for  months  at  a  time  without  pay.  No  one  outside  of 
the  Council  of  the  Union  knew  the  stress  that  came  upon  these 
three  men.  Up  to  the  decision  to  institute  the  conspiracy  suit 
they  had  worked  in  harmony.  But  when  that  was  decided  upon 
Mr.  Patterson  withdrew.  He  saw  how  fatal  such  a  move  must 
be,  how  completely  it  interfered  with  the  real  work  of  the 
Union,  forcing  common  carriers  to  do  their  duty.  He  saw 
that  the  substantial  steps  gained  were  given  up  and  that  the 
work  would  all  have  to  be  done  over  again  if  their  suit  went 
on.  Mr.  Campbell  believed  in  it,  however,  and  Mr.  Sherman, 
whether  he  believed  in  it  or  not,  saw  no  way  but  to  follow 
his  chief.  The  nine  months  of  disappointment  and  disillusion 
which  followed  were  terrible  for  both  men.  They  soon  saw 
that  the  forces  against  them  were  too  strong,  that  they  would 
never  in  all  probability  be  able  to  get  the  conspiracy  suit  tried, 
and  that  so  long  as  it  was  on  the  docket  the  proper  witnesses 
could  not  be  secured  for  the  suits  against  the  railroads.  Finally 
it  came  to  be  a  question  with  them  what  out  of  the  wreck  of 

[256] 


THE  COMPROMISE  OF  1880 

their  plans  and  hopes  could  they  save?  And  they  saved  what 
the  compromise  granted.  If  the  oil  producers  they  repre- 
sented, a  body  of  some  2,000  men,  had  stood  behind  them 
throughout  1879  as  they  did  in  1878  the  results  would 
have  been  different.  Their  power,  their  means,  were  derived 
from  this  body,  and  this  body  for  many  months  had  been  giv- 
ing them  feeble  support.  Scattered  as  they  were  over  a  great 
stretch  of  country,  interested  in  nothing  but  their  own  oil 
farms,  the  producers  could  only  be  brought  into  an  alliance 
by  hope  of  overturning  disastrous  business  conditions.  They 
all  felt  that  the  monopoly  the  Standard  had  achieved  was  a 
menace  to  their  interests,  and  they  went  willingly  into  the 
Union  at  the  start,  and  supported  it  generously,  but  they  were 
an  impatient  people,  demanding  quick  results,  and  when  they 
saw  that  the  relief  the  Union  promised  could  only  come 
through  lawsuits  and  legislation  which  it  would  take  perhaps 
years  to  finish,  they  lost  interest  and  refused  money.  At  the 
first  meeting  of  the  Grand  Council  of  the  Union  in  Novem- 
ber, 1878,  there  were  nearly  200  delegates  present — at  the 
last  one  in  February,  1880,  scarcely  forty.  Many  of  the  local 
lodges  were  entirely  dead.  Not  even  the  revival  in  the  sum- 
mer of  1879  of  the  hated  immediate  shipment  order,  which 
had  caused  so  much  excitement  the  year  before,  but  which  had 
not  been  enforced  long  because  of  the  uprising,  brought  them 
back  to  the  Union.  In  July  the  order  had  been  put  in  operation 
again  in  a  fashion  most  offensive  to  the  oil  men,  it  being  an- 
nounced by  the  United  Pipe  Lines  that  thereafter  oil  would 
be  bought  by  a  system  of  sealed  bids.  Blanks  were  to  be  fur- 
nished the  producers,  the  formula  of  which  ran: 

Bradford,  Pennsylvania, 187 . . 

I  hereby  offer  to  sell  J.  A.  Bostwick barrels  crude  oil,  of  forty-two  gallons 

per  barrel,  at  ...  .  cents,  at  the  wells,  for  shipment  from  the  United  Pipe  Lines,  within 
the  next  five  (5)  days,  provided  that  any  portion  of  the  oil  not  delivered  to  you  within 
the  specified  time  shall  be  considered  cancelled. 

[257] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

There  was  a  frightful  uproar  in  consequence.  The  morning 
after  this  announcement  several  hundred  men  gathered  in 
front  of  the  United  Pipe  Line's  office  in  Bradford,  and  held 
an  open-air  meeting.  They  had  a  band  on  the  ground  which 
played  "Hold  the  Fort";  and  the  following  resolutions  were 
adopted : 

"  Resolved,  That  the  oil  producers  of  the  Northern  District  in  meeting  assembled 
do  maintain  and  declare  that  the  present  shipment  order  is  infamous  in  principle  and 
disreputable  in  practice,  and  we  hereby  declare  that  we  will  not  sell  one  barrel  of  oil 
in  conformity  with  the  requirements  of  the  said  order.  And  we  pledge  our  lives,  our 
fortunes  and  our  sacred  honour  to  resort  to  every  legal  means,  to  use  every  influence 
in  our  power  to  prevent  any  sales  under  the  said  order.  And  we  also  declare  that  the 
United  Pipe  Lines  shall  hereafter  perform  their  duty  as  common  carriers  under  the 
law." 

That  night  a  battalion  of  some  300  masked  men  in  robes 
of  white  marched  through  the  streets  of  Bradford,  groan- 
ing those  that  they  suspected  of  being  in  sympathy  with  the 
Standard  methods,  and  cheering  their  friends.  Again  there 
appeared  there,  that  night,  all  over  the  upper  oil  country, 
cabalistic  signs,  which  had  been  seen  there  often  the  year 
before.  The  feeling  was  so  intense,  and  the  danger  of  riot 
so  great,  that  twenty-four  hours  after  the  order  for  sealed 
bids  was  given,  it  was  withdrawn.  The  outbreak  aroused  Mr. 
Campbell's  hope  that  it  might  be  possible  at  this  moment  to 
arouse  the  lodges,  and  he  wrote  a  prominent  oil  man  of  Brad- 
ford asking  his  opinion.  In  reply  he  received  the  following 
letter.  It  shows  very  well  what  the  leaders  had  to  contend 
against.  It  shows,  too,  the  point  of  view  of  a  very  frank  and 
intelligent  oil  producer: 

"  Bradford,  Pennsylvania,  July  30,  1870. 
"  B.  B.  Campbell,  J    *  * 

Parnassus,  Pennsylvania. 

Dear  Sir — Your  despatch  of  yesterday  from  O.  C.  has  only  just  reached  me.  As 

I  cannot  say  what  I  want  to  over  the  wires  I  reply  by  mail. 

[258] 


THE  COMPROMISE  OF  1880 

You  ask  if  the  high-sounding  wording  of  the  declaration  of  rights  of  the  producers 
made  at  their  mass-meeting,  held  here  on  Monday,  in  which  they  pledged  their  lives, 
fortunes  and  sacred  honours,  means  liberal  subscriptions  to  the  Council  funds.  I  reply 
with  sorrow  and  humiliation — /  fear  not.  All  this  high-flown  talk  is  buncombe  of 
the  worst  kind.  The  producers  are  willing  to  meet  in  a  mass-meeting  held  out  of  doors 
where  it  costs  nothing  even  for  rent  of  a  hall,  and  pass  any  kind  of  a  resolution  that  is 
offered.  It  costs  nothing  to  do  this,  but  when  asked  to  contribute  a  dollar  to  the  legal 
prosecution  of  these  plunderers,  robbers,  and  fugitives  from  justice,  whom  they  are 
denouncing  in  their  resolution,  they  either  positively  refuse,  say  that  the  Council  is 
doing  nothing,  that  the  suits  are  interminable  and  will  never  end,  that  there  is  no 
justice  to  be  obtained  in  the  courts  of  Pennsylvania,  etc.,  etc.,  or  else  plead  poverty 
and  say  they  have  contributed  all  that  they  are  able  to. 

True,  the  producers  are  poor  and  the  suits  and  legal  proceedings  are  slow,  and 
there  is  much  to  discourage  them,  but  I  tell  you,  my  honoured  chief,  that  the  true 
inwardness  of  this  state  of  affairs  is,  that  the  people  of  the  Oil  Regions  have  by  slow 
degrees  and  easy  stages  been  brought  into  a  condition  of  bondage  and  serfdom  by 
the  monopoly,  until  now,  when  they  have  been  aroused  to  a  realisation  of  their  con- 
dition, they  have  not  the  courage  and  manhood  left  to  enable  them  to  strike  a  blow 
for  liberty.  And  these  are  the  people  for  whom  you  and  your  few  faithful  followers 
in  the  Council  are  labouring,  spending  (I  fear  wasting)  your  substance — neglecting 
your  own  interest  to  advance  theirs,  and  all  for  what  good — " cui  bono"? 

I  fear  you  will  say  that  I  am  discouraged.  No,  not  discouraged,  but  disgusted  with 
the  poor,  spiritless,  and  faint-hearted  people  whom  you  are  labouring  so  hard  to 
liberate  from  bondage.  As  to  the  prospects  of  raising  funds  for  the  prosecution  of  the 
suits  by  subscription  or  assessments  on  the  Unions,  I  am  sorry  to  say  that  I  fear  it  is 
impossible — at  least  it  is  impossible  for  me  to  make  any  collections — and  right  here 
let  me  make  a  suggestion.  I  often  feel  that  the  fault  may  not  be  with  the  people,  but 
with  the  writer.  I  would  therefore  suggest  that  you  select  from  among  the  members 
of  the  Council  any  good  man  whom  you  think  has  the  power  of  convincing  these  people 
that  their  only  hope  of  relief  lies  in  sustaining  you  in  the  prosecution  of  the  suits,  and 
therefore  they  must  contribute  to  the  fund.  If  you  will  do  this,  I  will  promise  you 
that  he  will  be  hospitably  received  and  favourably  introduced  by  the  writer.  But  as 
for  depending  on  the  unaided  efforts  of  myself  to  raise  funds,  I  fear  it  would  be  useless. 

I  do  not  write  this,  my  friend,  with  a  view  of  throwing  any  discouragement  in  your 
path,  which,  God  knows,  is  rugged  and  thorny  enough,  but  I  must  give  vent  to  my 
righteous  indignation  in  some  way,  and  ask  you  are  the  producers  as  a  class  (nothing 

but  a  d d  cowardly,  disorganised  mob  as  they  are)  worth  the  efforts  you  are  putting 

forth  to  save  them  ? 

As  for  myself,  a  single  individual  (and  I  can  speak  for  no  others),  I  am  determined 
to  stand  with  you  until  the  end,  with  my  best  strength  and  my  last  dollar." 

[  259  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Now,  what  was  this  loose  and  easily  discouraged  organisa- 
tion opposing?  A  compact  body  of  a  few  able,  cold-blooded 
men — men  to  whom  anything  was  right  that  they  could  get, 
men  knowing  exactly  what  they  wanted,  men  who  loved  the 
game  they  played  because  of  the  reward  at  the  goal,  and, 
above  all,  men  who  knew  how  to  hold  their  tongues  and  wait. 
"To  Mr.  Rockefeller,',  they  say  in  the  Oil  Regions,  "a  day 
is  as  a  year  and  a  year  as  a  day.  He  can  wait,  but  he  never 
gives  up."  Mr.  Rockefeller  knew  the  producers,  knew  how 
feeble  their  staying  qualities  in  anything  but  the  putting  down 
of  oil  wells,  and  he  may  have  said  confidently,  at  the  begin- 
ning of  their  suits  against  him,  as  it  was  reported  he  did  say, 
that  they  would  never  be  finished.  They  had  not  been  finished 
from  any  lack  of  material.  If  the  suits  had  been  pushed  but 
one  result  was  possible,  and  that  was  the  conviction  of  both 
the  Standard  and  the  railroads;  they  had  been  left  unfinished 
because  of  the  impatience  and  instability  of  the  prosecuting 
body  and  the  compactness,  resolution  and  watchfulness  of 
the  defendants. 

The  withdrawal  of  the  suits  was  a  great  victory  for  Mr. 
Rockefeller.  There  was  no  longer  any  doubt  of  his  power  in 
defensive  operations.  Having  won  a  victory,  he  quickly  went 
to  work  to  make  it  secure.  The  Union  had  surrendered,  but 
the  men  who  had  made  the  Union  remained;  the  evidence 
against  him  was  piled  up  in  indestructible  records.  In  time 
the  same  elements  which  had  united  to  form  the  serious  oppo- 
sition just  overthrown  might  come  together,  and  if  they  should 
it  was  possible  that  they  would  not  a  second  time  make  the 
mistake  of  vacillation.  The  press  of  the  Oil  Regions  was 
largely  independent.  It  had  lost,  to  be  sure,  the  audacity,  the 
wit,  the  irrepressible  spirit  of  eight  years  before  when  it 
fought  the  South  Improvement  Company.  Its  discretion  had 
outstripped  its  courage,  but  there  were  still  signs  of  intelli- 

[  260] 


THE  COMPROMISE  OF  1880 

gent  independence  in  the  newspapers.  Mr.  Rockefeller  now 
entered  on  a  campaign  of  reconciliation  which  aimed  to  pla- 
cate, or  silence,  every  opposing  force. 

Many  of  the  great  human  tragedies  of  the  Oil  Regions  lie 
in  the  individual  compromises  which  followed  the  public 
settlement  of  1880;  for  then  it  was  that  man  after  man,  from 
hopelessness,  from  disgust,  from  ambition,  from  love  of  money, 
gave  up  the  fight  for  principle  which  he  had  waged  for  seven 
years.  "The  Union  has  surrendered,"  they  said;  "why  fight 
on?"  This  man  took  a  position  with  the  Standard  and  became 
henceforth  active  in  its  business ;  that  man  took  a  salary  and 
dropped  out  of  sight;  this  one  went  his  independent  way,  but 
with  closed  lips;  that  one  shook  the  dust  of  the  Oil  Regions 
from  his  feet  and  went  out  to  seek  "God's  country,"  asking 
only  that  he  should  never  again  hear  the  word  "oil."  The 
newspapers  bowed  to  the  victor.  A  sudden  hush  came  over 
the  region,  the  hush  of  defeat,  of  cowardice,  of  hopelessness. 
Only  the  "poor  producer"  grumbled.  "You  can't  satisfy  the 
producer,"  Mr.  Rockefeller  often  has  had  occasion  to  remark 
benignantly  and  pitifully.  The  producer  alone  was  not  "con- 
vinced." He  still  rehearsed  the  series  of  dramatic  attacks  and 
sieges  which  had  wiped  out  independent  effort.  He  taught 
his  children  that  the  cause  had  been  sold,  and  he  stigmatised 
the  men  who  had  gone  over  to  the  Standard  as  traitors.  Scores 
of  boys  and  girls  grew  up  in  the  Oil  Regions  in  those  days 
with  the  same  feeling  of  terrified  curiosity  toward  those  who 
had  "sold  to  the  Standard"  that  they  had  toward  those  who 
had  "been  in  jail."  The  Oil  Regions  as  a  whole  was  at  heart 
as  irreconcilable  in  1880  as  it  had  been  after  the  South  Im- 
provement Company  fight,  and  now  it  had  added  to  its  sense 
of  outrage  the  humiliation  of  defeat.  Its  only  immediate  hope 
now  was  in  the  success  of  one  of  the  transportation  enterprises 
which  had  come  into  existence  with  the  uprising  of  1878  and 

[261] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY » 

to  which  it  had  been  for  two  years  giving  what  support  it 
could.  This  enterprise  was  the  seaboard  pipe-line  which,  as 
we  have  seen,  Messrs.  Benson,  McKelvy  and  Hopkins  had 
undertaken. 


[262] 


APPENDIX 


r 


NUMBER   i    (See  page  7) 

PROFESSOR  SILLIMAN'S  REPORT  ON  PETROLEUM 
[From  "  The  Early  and  Later  History  of  Petroleum,"  by  J.  T.  Henry,  pages  38-54.] 

Messrs.  Eveleth,  Bissell  and  Reed. 

Gentlemen: — I  herewith  offer  you  the  results  of  my  somewhat  extended  researches 
upon  the  rock-oil,  or  petroleum,  from  Venango  County,  Pennsylvania,  which  you 
have  requested  me  to  examine  with  reference  to  its  value  for  economical  purposes. 

Numerous  localities,  well  known  in  different  parts  of  the  world,  furnish  an  oily  fluid 
exuding  from  the  surface  of  the  earth,  sometimes  alone  in  "tar  springs,"  as  they  are 
called  in  the  Western  United  States;  frequently  it  is  found  floating  upon  the  surface 
of  water  in  a  thin  film,  with  rainbow  colours,  or  in  dark  globules,  that  may,  by  me- 
chanical means,  be  separated  from  the  fluid  on  which  it  swims. 

In  some  places  wells  are  sunk  for  the  purpose  of  accumulating  the  product  in  a 
situation  convenient  for  collection  by  pumping  the  water  out.  The  oil  exudes  on  the 
shores  of  lakes  and  lagoons,  or  rises  from  springs  beneath  the  beds  of  rivers.  Such  are 
the  springs  of  Baku,  in  Persia,  and  the  wells  of  Amiano,  in  the  duchy  of  Parma,  in 
Italy.  The  usual  geological  position  of  the  rocks  furnishing  this  natural  product 
is  in  the  coal  measures — but  it  is  by  no  means  confined  to  this  group  of  rocks,  since 
it  has  been  found  in  deposits  much  more  recent,  and  also  in  those  that  are  older — but 
in  whatever  deposits  it  may  occur,  it  is  uniformly  regarded  as  a  product  of  vegetable 
decomposition.  Whether  this  decomposition  has  been  effected  by  fermentation  only, 
or  by  the  aid  of  an  elevated  temperature,  and  distilled  by  heated  vapour,  is  perhaps 
hardly  settled. 

It  is  interesting,  however,  in  this  connection  to  remember  that  the  distillation,  at 
an  elevated  temperature,  of  certain  black,  bituminous  shales  in  England  and  France 
has  furnished  large  quantities  of  an  oil  having  many  points  of  resemblance  with  naphtha, 
the  name  given  to  this  colourless  oil,  which  is  the  usual  product  of  distilling  petroleum. 
The  very  high  boiling  point  of  most  of  the  products  of  the  distillation  of  the  rock 
oil  from  Venango  County,  Pennsylvania,  would  seem  to  indicate  that  it  was  a  pyro- 
genic  (fire-produced)  product. 

[a65] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Bitumen,  asphaltum,  mineral  pitch,  chapapote,  etc.,  etc.,  are  names  variously  given 
to  the  more  or  less  hard,  black,  resinous  substance  which  is  produced  usually  from 
the  exposure  of  petroleum  to  the  air,  and  is  found  either  with  or  without  the  fluid 
naphtha  or  petroleum.  The  most  remarkable  examples  of  the  occurrence  of  these 
substances,  so  intimately  connected  with  the  history  of  rock-oil,  are  the  Lake  Asphal- 
tites  of  the  Dead  Sea,  so  memorable  in  history,  the  well-known  Bitumen  Lake  of 
Trinidad,  and  the  deposits  of  mineral  pitch  or  chapapote  in  Cuba.  In  one  of  the 
provinces  of  India,  vast  quantities  of  petroleum  are  annually  produced,  the  chief  con- 
sumption being  local,  for  fuel  and  lights,  but  a  portion  is  also  exported  to  Europe 
for  the  production  of  naphtha.  In  the  United  States,  many  points  on  the  Ohio  and 
its  tributaries  are  noted  as  producing  this  oil;  nearly  all  of  them  within  the  coal  meas- 
ures. A  detailed  history  of  these  various  localities  can  be  found  recorded  in  books  of 
science,  and  their  repetition  here  would  be  out  of  place. 

GENERAL  CHARACTER  OF  THE  CRUDE  PRODUCT 

The  crude  oil,  as  it  is  gathered  on  your  lands,  has  a  dark  brown  colour,  which,  by 
reflected  light,  is  greenish  or  bluish.  It  is  thick  even  in  warm  weather — about  as   i 
thick  as  thin  molasses.  In  very  cold  weather  it  is  somewhat  more  stiff,  but  can  always 
be  poured  from  a  bottle  even  at  150  below  zero.  Its  odour  is  strong  and  peculiar,  and 
recalls  to  those  who  are  familiar  with  it  the  smell  of  bitumen  and  naphtha.   Exposed 
for  a  long  time  to  the  air,  it  does  not  thicken  or  form  a  skin  on  its  surface,  and  in    I 
no  sense  can  it  be  called  a  drying  oil.    The  density  of  the  crude  oil  is  .882,  water  being 
1 .000.    It  boils  only  at  a  very  high  temperature,  and  yet  it  begins  to  give  off  a  vapour  j 
at  a  temperature  not  greatly  above  that  of  boiling  water.    It  takes  fire  with  some 
difficulty  and  burns  with  an  abundant  smoky  flame.  It  stains  paper  with  the  appearance   ;j 
of  ordinary  fat  oils,  and  feels  smooth  and  greasy  between  the  fingers.  It  is  frequently    jj 
used  in  its  crude  state  to  lubricate  coarse  machinery.  In  chemical  characters,  it  is 
entirely  unlike  the  fat  oils.  Most  of  these  characters  are  common  to  petroleum  from 
various  places.  In  one  important  respect,  however,  the  product  of  your  lands  differs    j 
from  that  obtained  in  other  situations,  that  is,  it  does  not,  by  continued  exposure 
to  the  air,  become  hard  and  resinous  like  mineral  pitch  or  bitumen.  I  have  been 
informed  by  those  who  have  visited  the  locality,  that  on  the  surface  of  the  earth  above 
the  springs  which  furnish  your  oil  there  is  no  crust  or  deposit  of  this  sort  such  as  | 
have  seen  in  other  situations  where  petroleum  or  mineral  tar  is  flowing.  This  difference 
will  be  seen  to  be  of  considerable  importance,  as  it  is  understood  and  represented 
that  this  product  exists  in  great  abundance  upon  your  property,  that  it  can  be  gathered 
wherever  a  well  is  sunk  in  the  soil,  over  a  great  number  of  acres,  and  that  it  is  unfailing 
in  its  yield  from  year  to  year.  The  question  naturally  arises,  Of  what  value  is  it  in  the 
arts,  and  for  what  uses  can  it  be  employed  ?  These  researches  answer  these  inquiries. 

[266] 


APPENDIX,  NUMBER  I 


EXAMINATION  OF  THE  OIL 


To  determine  what  products  might  be  obtained  in  the  oil,  a  portion  of  it  was  sub- 
mitted to  fractional  distillation.*  The  temperature  of  the  fluid  was  constantly  regulated 
by  a  thermometer,  the  heat  being  applied  first  by  a  water  bath,  and  then  by  a  bath 
of  linseed  oil.  This  experiment  was  founded  upon  the  belief  that  the  crude  product 
contained  several  distinct  oils,  having  different  boiling  points.  The  quantity  of  material 
used  in  this  experiment  was  304  grammes.  The  thermometer  indicated  the  degrees 
of  the  Centigrade  scale,  but,  for  convenience,  the  corresponding  degrees  of  Fahren- 
heit's scale  are  added.  The  water  bath  failed  to  distil  any  portion  of  the  oil  at  ioo° 
C.  (=212°  F.),  only  a  small  quantity  of  acid  water  came  over.  An  oil  bath,  linseed 
oil,  was  then  substituted,  and  the  temperature  was  regularly  raised  by  slow  degrees 
until  distillation  commenced.  From  that  point  the  heat  was  successively  raised  by 
stages  of  ten  degrees,  allowing  full  time  at  each  stage  for  complete  distillation  of  all 
that  would  rise  at  that  temperature  before  advancing  to  the  next  stage.  The  results 
of  this  tedious  process  are  given  in  the  annexed  table — 304  grammes  of  crude  oil, 
submitted  to  fractional  distillation,  gave 

TEMPERATURE  gUANTITY 

1st  Prod,  at  ioo°  C.  =    2130  F.  (acid  water) 5  gms. 

2nd    "  "  1400  C.  to  1500  C.=  284°to  3020  F.  26  " 

3rd     "  "  1500  C.   "  1600  C.=  302°  "  3200  F.  29  " 

4th     "  "  1600  C.   "  1700  C.=  320°  "  3880  F.  38  " 

5th     "  "  1700  C.   "  1800  C.=  338°  "  3670  F.  17  " 

6th     "  "  1800  C.   "  2000  C.=  356°  "  3920  F.  16  " 

7th     "  "  2000  C.   "  2200  C.=  392°  "  4280  F.  17  " 

8th     "  "  2200  C.   "  2700  C.=  428°  "  5180  F.  12  * 

Whole  quantity  distilled  by  this  method 160  " 

Leaving  residue  in  the  retort , . . .  144 

Original  quantity 304 

Product  No.  1,  as  above  remarked,  was  almost  entirely  water,  with  a  few  drops  of 
colourless  oil,  having  an  odour  similar  to  the  original  fluid,  but  less  intense. 

Product  No.  2  was  an  oil  perfectly  colourless,  very  thin  and  limpid,  and  having 
an  exceedingly  persistent  odour,  similar  to  the  crude  oil,  but  less  intense. 

Product  No.  3  was  tinged  slightly  yellow,  perfectly  transparent,  and  apparently 
as  limpid  as  the  second  product,  with  the  same  odour. 

*  Fractional  distillation  is  a  process  intended  to  separate  various  products  in  mixture,  and  having  unlike 
boiling-points,  by  keeping  the  mixture  contained  in  an  alembic  at  regulated  successive  stages  of  tempera- 
ture as  long  as  there  it  any  distillate  at  a  given  point,  and  then  raising  the  heat  to  another  degree,  etc. 

[267] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Product  No.  4  was  more  decidedly  yellowish  than  the  last,  but  was  in  no  other 
respect  distinguishable  from  it. 

Product  No.  5  was  more  highly  coloured,  thicker  in  consistence,  and  had  a  de- 
cided empyreumatic  odour. 

Product  No.  6.  This  and  the  two  subsequent  products  were  each  more  highly 
coloured  and  denser  than  the  preceding.  The  last  product  had  the  colour  and  con- 
sistency of  honey,  and  the  odour  was  less  penetrating  than  that  of  the  preceding  oils. 
The  mass  of  crude  product  remaining  in  the  retort  (equal  47 .4  per  cent.)  was  a  dark, 
thick,  resinous-looking  varnish,  which  was  so  stiff  when  cold  that  it  could  be  inverted 
without  spilling.  This  showed  no  disposition  to  harden  or  skin  over  by  exposure 
to  the  air.  The  distillation  was  arrested  at  this  point  in  glass,  by  our  having  reached 
the  limit  of  temperature  for  a  bath  of  linseed  oil.  The  density  of  the  several  products 
of  this  distillation  shows  a  progressive  increase,  thus: 


DENSITY 

No.  2 733 

No.  3 752 

No.  4 766 

No.  5 776 


DINSITY 

No.  6 800 

No.  7 848 

No.  8 854 


To  form  an  idea  of  the  comparative  density  of  these  several  products,  it  may  be 
well  to  state  that  sulphuric  ether,  which  is  one  of  the  lightest  fluids  known,  has  a 
density  of  .  736,  and  alcohol,  when  absolutely  pure,  .  800. 

The  boiling  points  of  these  several  fluids  present  some  anomalies,  but  are  usually 
progressive,  thus,  No.  2  gave  signs  of  boiling  at  1150  C.  (=239°  F.),  and  boiled  vigor- 
ously and  remained  constant  at  2250  C.  to  2280  C.  (=437°  to  4420  F.).  No.  3  began 
to  boil  1200  (=248°  F.),  rose  to  2700  (=518°  F.),  where  it  remained  constant.  No. 
4  began  to  vapourise  at  1400  (=284°  F.),  rose  to  2900  (=554°  F.),  where  it  remained 
constant.  On  a  second  heating  the  temperature  continued  to  rise,  and  passed  3050 
(=581°  F.).  No.  5  gave  appearance  of  boiling  at  1600  (=320°  F.),  boiling  more 
vigorously  as  the  heat  was  raised,  and  was  still  rising  at  308°  (=581°  F.).  No.  6  com- 
menced boiling  at  1350  (=275°  F.),  boiled  violently  at  1600  (=320°  F.),  and  continued 
rising  above  the  range  of  the  mercurial  thermometer.  No.  7  commenced  ebullition 
at  the  same  temperature  as  No.  6,  and  rose  to  3050  (=581°  F.),  where  the  ebullition 
was  not  very  active.  Much  time  was  consumed  in  obtaining  these  results.  We  infer 
from  them  that  the  rock-oil  is  a  mixture  of  numerous  compounds,  all  having  essentially 
the  same  chemical  constitution,  but  differing  in  density  and  boiling  points,  and  capable 
of  separation  from  each  other,  by  a  well-regulated  heat. 

The  uncertainty  of  the  boiling  points  indicates  that  the  products  obtained  at  the 
temperatures  named  above  were  still  mixtures  of  others,  and  the  question  forces 
itself  upon  us,  whether  these  several  oils  are  to  be  regarded  as  educts  (i.  e.,  bodies 

[268] 


APPENDIX,  NUMBER  I 

previously  existing,  and  simply  separated  in  the  process  of  distillation),  or  whether 
they  are  not  rather  produced  by  the  heat  and  chemical  change  in  the  process  of  dig- 
tillation.  The  continued  application  of  an  elevated  temperature  alone  is  sufficient 
to  effect  changes  in  the  constitution  of  many  organic  products,  evolving  new  bodies 
not  before  existing  in  the  original  substance. 

PROPERTIES   OF   THE    DISTILLED   OILS 

Exposed  to  the  severest  cold  of  the  past  winter,  all  the  oils  obtained  in  this  dis- 
tillation remained  fluid.  Only  the  last  two  or  three  appeared  at  all  stiffened  by  a 
cold  of  1 50  below  zero,  while  the  first  three  or  four  products  of  distillation  retained  a 
>erfect  degree  of  fluidity.  Exposed  to  air,  as  I  have  said,  they  suffer  no  change.  The 
rhemical  examination  of  these  oils  showed  that  they  were  all  composed  of  carbon  and 
lydrogen,  and  probably  have  these  elements  in  the  same  numerical  relation.  When 
irst  distilled  they  all  had  an  acid  reaction,  due  to  the  presence  of  a  small  quantity 
)f  free  sulphuric  acid,  derived  from  the  crude  oil.  This  was  entirely  removed  by  a  weak 
ilkaline  water,  and  even  by  boiling  on  pure  water.  Clean  copper  remained  untarnished 
in  the  oil  which  had  thus  been  prepared,  showing  its  fitness  for  lubrication,  so  far  as 
absence  of  corrosive  quality  is  concerned.  The  oils  contain  no  oxygen,  as  is  clearly 
shown  by  the  fact  that  clean  potassium  remains  bright  in  them.  Strong  sulphuric 
acid  decomposes  and  destroys  the  oil  entirely.  Nitric  acid  changes  it  to  a  yellow,  oily 
fluid,  similar  to  the  changes  produced  by  nitric  acid  on  other  oils.  Hydrochloric, 
chromic,  and  acetic  acids  do  not  affect  it.  Litharge  and  other  metallic  oxyds  do  not 
change  it,  or  convert  it  in  any  degree  to  a  drying  oil.  Potassium  remains  in  it  un- 
affected, even  at  a  high  temperature.  Hydrates  of  potash,  soda,  and  lime  are  also 
without  action  upon  it.  Chloride  of  calcium  and  many  other  salts  manifest  an  equal 
indifference  to  it.  Distilled  with  bleaching  powders  (chloride  of  lime)  and  water  in 
the  manner  of  producing  chloroform,  the  oil  is  changed  into  a  product  having  an  odour 
and  taste  resembling  chloroform.  Exposed  for  many  days  in  an  open  vessel,  at  a 
regulated  heat  below  21 2°,  the  oil  gradually  rises  in  vapour,  as  may  be  seen  by  its 
staining  the  paper  used  to  cover  the  vessel  from  dust,  and  also  by  its  sensible  diminution. 
Six  or  eight  fluid  ounces,  exposed  in  this  manner  in  a  metallic  vessel  for  six  weeks 
or  more,  the  heat  never  exceeding  2000,  gradually  and  slowly  diminished,  grew  yellow, 
and  finally  left  a  small  residue  of  dark  brown,  lustrous-looking  resin,  or  pitchy  substance, 
which  in  the  cold  was  hard  and  brittle.  The  samples  of  oil  employed  were  very  nearly 
colourless.  This  is  remarkable  when  we  remember  that  the  temperature  of  the  dis- 
tillation was  above  5000  F.  The  oil  is  nearly  insoluble  in  pure  alcohol,  not  more  than 
4  or  5  per  cent,  being  dissolved  by  this  agent.  In  ether  the  oil  dissolves  completely, 
and  on  gentle  heating  is  left  unchanged  by  the  evaporisation  of  the  ether.  India-rubber 
is  dissolved  by  the  distilled  oil  to  a  pasty  mass,  forming  a  thick,  black  fluid  which, 

[269] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

after  a  short  time,  deposits  the  India-rubber.  It  dissolved  a  little  amber,  but  only 
sufficient  to  colour  the  oil  red.  It  also  dissolves  a  small  portion  of  copal  in  its  natural 
state,  but  after  roasting,  the  copal  dissolves  in  it  as  it  does  in  other  oils. 


USE   FOR   GAS-MAKING 

The  crude  oil  was  tried  as  a  means  of  illumination.  For  this  purpose,  a  weighed 
quantity  was  decomposed,  by  passing  it  through  a  wrought-iron  retort  filled  with 
carbon,  and  ignited  to  full  redness.  The  products  of  this  decomposition  were  received 
in  a  suitable  apparatus.  It  produced  nearly  pure  carburetted  hydrogen  gas,  the  most 
highly  illuminating  of  all  the  carbon  gases.  In  fact,  the  oil  may  be  regarded  as  chemi- 
cally identical  with  illuminating  gas  in  a  liquid  form.  The  gas  produced  equalled 
ten  cubic  feet  to  the  pound  of  oil.  It  burned  with  an  intense  flame,  smoking  in  the 
ordinary  gas  jet,  but  furnishing  the  most  perfect  flame  with  the  Argand  burner. 

These  experiments  were  not  prosecuted  further,  because  it  was  assumed  that  other 
products,  now  known  and  in  use,  for  gas-making,  might  be  employed  at  less  expense 
for  this  purpose,  than  your  oil.  Nevertheless,  this  branch  of  inquiry  may  be  worthy 
of  further  attention. 


DISTILLATION   AT  A   HIGHER   TEMPERATURE 

The  results  of  the  distillation  at  a  regulated  temperature  in  glass  led  us  to  believe 
that  in  a  metallic  vessel,  capable  of  enduring  a  high  degree  of  heat,  we  might  obtain 
a  much  larger  proportion  of  valuable  products.  A  copper  still,  holding  five  or  six 
gallons,  was  therefore  provided,  and  furnished  with  an  opening,  through  which  a 
thermometer  could  be  introduced  into  the  interior  of  the  vessel.  Fourteen  imperial 
quarts  (or,  by  weight,  560  ounces)  of  the  crude  product  were  placed  in  this  vessel, 
and  the  heat  raised  rapidly  to  about  2800  C.  (=  5360  F.),  somewhat  higher  than  the 
last  temperature  reached  in  the  first  distillation.  At  this  high  temperature  the  dis- 
tillation was  somewhat  rapid,  and  the  product  was  easily  condensed  without  a  worm. 
The  product  of  the  first  stage  was  130  ounces  (or  over  28  per  cent.),  of  a  very  light- 
coloured  thin  oil,  having  a  density  of  .  792.  This  product  was  also  acid,  and  as  before, 
the  acid  was  easily  removed  by  boiling  with  fresh  water.  The  temperature  was  now 
raised  to  somewhat  above  3000  C.  (=572°  F.),  and  123  ounces  more  distilled,  of  a 
more  viscid  and  yellowish  oil,  having  a  density  of  .865.  This  accounts  for  over  43 
per  cent,  of  the  whole  quantity  taken.  The  temperature  being  raised  now  above  the 
boiling  point  of  mercury,  was  continued  at  that  until  170  ounces,  or  over  31  per  cent., 
of  a  dark  brown  oil  had  been  distilled,  having  a  strong  empyreumatic  odor.  Upon 
standing  still  for  some  time,  a  dark  blackish  sediment  was  seen  to  settle  from  this 

[270] 


APPENDIX,  NUMBER  I 

portion,  and  on  boiling  it  with  water  the  unpleasant  odour  was  in  a  great  degree  re- 
moved, and  the  fluid  became  more  light-coloured  and  perfectly  bright.  (It  was  on  a 
sample  of  this  that  the  photometric  experiments  were  made.)  The  next  portion, 
distilled  at  about  7000  F.,  gave  but  about  17  ounces,  and  this  product  was  both  lighter 
in  colour  and  more  fluid  than  the  last.  It  now  became  necessary  to  employ  dry  hickory 
wood  as  a  fuel,  to  obtain  flame  and  sufficient  heat  to  drive  over  any  further  portions 
of  the  residue  remaining  in  the  alembic. 

It  will  be  seen  that  we  have  already  accounted  for  over  75  per  cent,  of  the  whole 
quantity  taken.  There  was  a  loss  on  the  whole  process  of  about  10  per  cent ..  made  up, 
in  part,  of  a  coaly  residue  that  remained  in  the  alembic,  and  partly  of  the  unavoidable 
loss  resulting  from  the  necessity  of  removing  the  oil  twice  from  the  alembic,  during 
the  process  of  distillation,  in  order  to  change  the  arrangements  of  the  thermometer, 
and  provide  means  of  measuring  a  heat  higher  than  that  originally  contemplated. 

About  15  per  cent,  of  a  very  thick,  dark  oil  completed  this  experiments  This  last 
product,  which  came  off  slowly  at  about  7500  F.,  is  thicker  and  darker  than  the  original 
oil,  and  when  cold,  is  filled  with  a  dense  mass  of  pearly  crystals.  These  are  paraffine,  a 
peculiar  product  of  the  destructive  distillation  of  many  bodies  in  the  organic  kingdom. 
This  substance  may  be  separated,  and  obtained  as  a  white  body,  resembling  fine 
spermaceti,  and  from  it  beautiful  candles  have  been  made.  The  oil  in  which  the  crystals 
float  is  of  a  very  dark  colour,  and  by  reflected  light  is  blackish  green,  like  the  original 
crude  product.  Although  it  distills  at  so  high  a  temperature,  it  boils  at  a  point  not 
very  different  from  the  denser  products  of  the  first  distillation,,  The  paraffine,  with 
which  this  portion  of  the  oil  abounds,  does  not  exist  ready-formed  in  the  original 
crude  product;  but  it  is  a  result  of  the  high  temperature  employed  in  the  process  of 
distillation,  by  which  the  elements  are  newly  arranged. 

I  am  not  prepared  to  say,  without  further  investigation,  that  it  would  be  desirable 
for  the  company  to  manufacture  this  product  in  a  pure  state,  fit  for  producing  candles 
(a  somewhat  elaborate  chemical  process);  but  I  may  add  that,  should  it  be  desirable 
to  do  so,  the  quantity  of  this  substance  produced  may  probably  be  very  largely  in- 
creased by  means  which  it  is  now  unnecessary  to  mention. 

Paraffine  derives  its  name  from  the  unalterable  nature  of  the  substance,  under 
the  most  powerful  chemical  agents.  It  is  white,  in  brilliant  scales  of  a  greasy  lustre; 
it  melts  at  about  11 6°,  and  boils  at  over  7000  F.;  it  dissolves  in  boiling  alcohol  and 
ether,  and  burns  in  the  air  with  a  brilliant  flame.  Associated  with  paraffine  are  portions 
of  a  very  volatile  oil,  eupione,  which  boils  at  a  lower  temperature,  and  by  its  presence 
renders  the  boiling  point  of  the  mixture  difficult  to  determine.  I  consider  this  point 
worthy  of  further  examination  than  I  have  been  able  at  present  to  give  it,  i.e.,  whether 
the  last  third,  and  possibly  the  last  half,  of  the  petroleum,  may  not  be  advantageously 
so  treated  as  to  produce  from  it  the  largest  amount  of  paraffine  which  it  is  able  to 
produce. 

[271] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

The  result  of  this  graduated  distillation,  at  a  high  temperature,  is  that  we  have 
obtained  over  90  per  cent,  of  the  whole  crude  product  in  a  series  of  oils,  having 
valuable  properties,  although  not  all  equally  fitted  for  illumination  and  lubrication. 

A  second  distillation  of  a  portion  of  the  product  which  came  over  in  the  later  stages 
of  the  process  (a  portion  distilled  at  about  6500  F.,  and  having  a  high  colour),  gave 
us  a  thin  oil  of  density  about  .  750,  of  light  yellow  colour  and  faint  odour. 

It  is  safe  to  add  that,  by  the  original  distillation,  about  50  per  cent,  of  the  crude  oil 
is  obtained  in  a  state  fit  for  use  as  an  illuminator  without  further  preparation  than 
simple  clarification  by  boiling  a  short  time  with  water. 


DISTILLATION   BY   HIGH   STEAM 

Bearing  in  mind  that  by  aid  of  high  steam,  at  an  elevated  temperature,  many  dis- 
tillations in  the  arts  are  affected  which  cannot  be  so  well  accomplished  by  dry  heat, 
I  thought  to  apply  this  method  in  case  of  the  present  research.  Instances  of  this  mode 
of  distillation  are  in  the  new  process  for  Stearine  candles,  and  in  the  preparation  of 
rosin  oil.  I  accordingly  arranged  my  retort  in  such  a  manner  that  I  could  admit  a 
jet  of  high  steam  into  the  boiler,  and  almost  at  the  bottom  of  the  contained  petroleum. 
I  was,  however,  unable  to  command  a  jet  of  steam  above  2750  to  2900  F.,  and  although 
this  produced  abundant  distillation,  it  did  not  effect  a  separation  of  the  several  products, 
and  the  fluid  distilled  had  much  the  same  appearance  as  the  petroleum  itself,  thick  and 
turbid.  As  this  trial  was  made  late  in  the  investigation,  I  have  been  unable  to  give 
it  a  satisfactory  issue,  chiefly  for  want  of  steam  of  a  proper  temperature.  But  I  sug- 
gest, for  the  consideration  of  the  company,  the  propriety  of  availing  themselves  of  the 
experience  already  existing  on  this  subject,  and  particularly  among  those  who  are 
concerned  in  the  distillation  of  rosin  oil — a  product  having  many  analogies  with 
petroleum  in  respect  to  its  manufacture. 


USE   OF   THE   NAPHTHA    FOR   ILLUMINATION 

Many  fruitless  experiments  have  been  made  in  the  course  of  this  investigation 
which  it  is  needless  to  recount.  I  will,  therefore,  only  state  those  results  which  are 
of  value. 

1.  I  have  found  that  the  only  lamp  in  which  this  oil  can  be  successfully  burned  is 
the  camphene  lamp,  or  one  having  a  button  to  form  the  flame,  and  an  external  cone 
to  direct  the  current  of  air,  as  is  now  usual  in  all  lamps  designed  to  burn  either  camphene, 
rosin  oil,  sylvic  oil,  or  any  other  similar  product. 

2.  As  the  distilled  products  of  petroleum  are  nearly  or  quite  insoluble  in  alcohol, 
burning  fluid  (i.  e.,  a  solution  of  the  oil  in  alcohol)  cannot  be  manufactured  from  it. 

[272] 


APPENDIX,  NUMBER  I 

3.  As  a  consequence,  the  oil  cannot  be  burned  in  a  hand  lamp,  since,  with  an  unpro- 
tected wick,  it  smokes  badly.  Neither  can  it  be  burned  in  a  Carcel's  mechanical  lamp, 
because  a  portion  of  the  oil  being  more  volatile  than  the  rest,  rises  in  vapour  on  the 
elevated  wick  required  in  that  lamp,  and  so  causes  it  to  smoke. 

I  have  found  all  the  products  of  distillation  from  the  copper  still  capable  of  burning 
well  in  the  camphene  lamp,  except  the  last  third  or  fourth  part  (i.e.,  that  portion 
which  came  off  at  7000  F.  and  rising,  and  which  was  thick  with  the  crystals  of  paraffine). 
Freed  from  acidity  by  boiling  on  water,  the  oils  of  this  distillation  burned  for  twelve 
hours  without  injuriously  coating  the  wick,  and  without  smoke.  The  wick  may  be 
elevated  considerably  above  the  level  required  for  camphene,  without  any  danger 
of  smoking,  and  the  oil  shows  no  signs  of  crusting  the  wick  tubes  with  a  coating  of 
rosin,  such  as  happens  in  the  case  of  camphene,  and  occasions  so  much  inconvenience. 
The  light  from  the  rectified  naphtha  is  pure  and  white,  without  odour.  The  rate  of 
consumption  is  less  than  half  that  of  camphene,  or  rosin  oil.  The  Imperial  pint,  of 
20  fluid  ounces,  was  the  one  employed — a  gallon  contains  160  such  ounces.  A  camphene 
lamp,  with  a  wick  one  inch  thick,  consumed  of  rectified  naphtha  in  one  hour,  if  ounces 
of  fluid.  A  Carcel's  mechanical  lamp  of  $-inch  wick,  consumed  of  best  sperm  oil, 
per  hour,  2  ounces.  A  "Diamond  Light"  lamp,  with  "sylvic  oil,"  and  a  wick  i$-inch 
diameter,  consumed,  per  hour,  4  ounces. 

I  have  submitted  the  lamp  burning  petroleum  to  the  inspection  of  the  most  ex- 
perienced lampists  who  were  accessible  to  me,  and  their  testimony  was,  that  the  lamp 
burning  this  fluid  gave  as  much  light  as  any  which  they  had  seen,  that  the  oil  spent 
more  economically,  and  the  uniformity  of  the  light  was  greater  than  in  camphene, 
burning  for  twelve  hours  without  a  sensible  diminution,  and  without  smoke.  I  was, 
however,  anxious  to  test  the  amount  of  light  given,  more  accurately  than  could  be 
done  by  a  comparison  of  opinions.  With  your  approbation  I  proceeded  therefore  to 
have  constructed  a  photometer,  or  apparatus  for  the  measurement  of  light,  upon  an 
improved  plan.  Messrs.  Grunow,  scientific  artists  of  this  city,  undertook  to  construct 
this  apparatus,  and  have  done  so  to  my  entire  satisfaction.  This  apparatus  I  shall 
describe  elsewhere — its  results  only  are  interesting  here.  By  its  means  I  have  brought 
the  petroleum  light  into  rigid  comparison  with  the  most  important  means  of  artificial 
illumination.  Let  us  briefly  recapitulate  the  results  of  these 


PHOTOMETRIC   EXPERIMENTS 

The  unit  adopted  for  comparison  of  intensities  of  illumination  is  Judd's  Patent 
Sixes  Sperm  Candle. 

The  sperm  oil  used  was  from  Edward  Mott  Robinson,  of  New  Bedford — the  best 
winter  sperm  remaining  fluid  at  320  F.  The  colza  oil  and  Carcel's  lamps  were  furnished 

[273] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

by  Dardonville,  lampist,  Broadway,  New  York.  The  gas  used  was  that  of  the  New 
Haven  Gas  Light  Co.,  made  from  best  Newcastle  coal,  and  of  fair  average  quality. 

The  distance  between  the  standard  candle,  and  the  illuminator  sought  to  be  deter- 
mined, was  constantly  150  inches — the  photometer  traversed  the  graduated  bar  in 
such  a  manner  as  to  read,  at  any  point  where  equality  of  illumination  was  produced, 
the  ratio  between  the  two  lights.  I  quote  only  single  examples  of  the  average  results, 
and  with  as  little  detail  as  possible,  but  I  should  state  that  the  operation  of  the  photom- 
eter was  so  satisfactory  that  we  obtained  constantly  the  same  figures  when  operating 
in  the  same  way,  evening  after  evening,  and  the  sensitiveness  of  the  instrument  was 
such  that  a  difference  of  one-half  inch  in  its  position  was  immediately  detected  in  the 
comparative  illumination  of  the  two  equal  discs  of  light  in  the  dark  chamber.  This 
is,  I  believe,  a  degree  of  accuracy  not  before  obtained  by  a  photometer. 

Table  of  Illuminating  Power  of  Various  Artificial  Lights  Compared 
with  Judd's  Patent  Candles  as  a  Unit 

SOURCE    OF    LIGHT  RATI°    T° 

CANDLE 1 

Gas  burning  in  Scotch  fish-tail  tips,  4  feet  to  the  hour 1 :  5.4 

Gas  burning  in  Scotch  fish-tail  tips,  6  feet  to  the  hour 1 :  7.55 

Gas  burning  in  Cornelius  fish-tail  tips,  6  feet  to  the  hour 1 :  6.3 

Gas  burning  in  English  Argand  burner,  10  feet  to  the  hour 1:16 

Rock-oil,  burning  in  i-inch  wick  camphene  lamp,  consuming  if  ounces  of  fluid 

to  the  hour 1 :  8.1 

Carcel's  mechanical  lamp,  burning  best  sperm  oil,  2  ounces  of  fluid  to  the  hour, 

wick  %  of  an  inch , 1 :  7.5 

Carcel's  mechanical  lamp,  burning  best  sperm  oil,  2  ounces  of  colza  oil  to  the 

hour,  wick  £  of  an  inch 1 :  7.5 

Camphene  lamp  (same  size  as  rock-oil  above)  burning  best  camphene,  4  fluid 

ounces  per  hour 1 : 1 1 

"  Diamond  Light "  by  "  sylvic  oil,"  in  1  i-inch  wick,  4  ounces  per  hour 1 :  8.1 

From  this  table  it  will  be  seen  that  the  rock-oil  lamp  was  somewhat  superior  in 
illuminating  power  to  Carcel's  lamp  of  the  same  size,  burning  the  most  costly  of  all 
oils.  It  was  also  equal  to  the  "Diamond  Light"  from  a  lamp  of  one-half  greater  power, 
and  consequently  is  superior  to  it  in  the  same  ratio  in  lamps  of  equal  power.  The 
camphene  lamp  appears  to  be  about  one-fifth  superior  to  it,  but,  on  the  other  hand, 
the  rock-oil  surpasses  the  camphene  by  more  than  one-half  in  economy  of  consumption 
(i.e.,  it  does  not  consume  one-half  so  much  fluid  by  measure),  and  it  burns  more  con- 
stantly. Compared  with  the  sylvic  oil  and  the  sperm,  the  rock-oil  gave  on  the  ground 
glass  diaphragm  the  whitest  disc  of  illumination,  while  in  turn  the  camphene  was 
whiter  than  the  rock-oil  light.  By  the  use  of  screens  of  different  coloured  glass,  all 
inequalities  of  colour  were  compensated  in  the  use  of  the  photometer,  so  that  the 
intensity  of  light  could  be  more  accurately  compared.  Compared  with  gas,  the  rock- 

[  274  J 


APPENDIX,  NUMBER  I 

oil  gave  more  light  than  any  burner  used  except  the  costly  Argand  consuming  ten 
feet  of  gas  per  hour.  To  compare  the  cost  of  these  several  fluids  with  each  other,  we 
know  the  price  of  the  several  articles,  and  this  varies  very  much  in  different  places. 
Thus,  gas  in  New  Haven  costs  $4  per  1,000  feet,  and  in  New  York  #3.50  per  1,000, 
in  Philadelphia  #2.00  per  1,000,  and  in  Boston  about  the  same  amount. 

Such  sperm  oil  as  was  used  costs  #2.50  per  gallon,  the  colza  about  $2,  the  sylvic  oil 
50  cents,  and  the  camphene  68  cents  ;  no  price  has  been  fixed  upon  for  the  rectified 
rock-oil. 

I  cannot  refrain  from  expressing  my  satisfaction  at  the  results  of  these  photometric 
experiments,  since  they  have  given  the  oil  of  your  company  a  much  higher  value  as 
an  illuminator  than  I  had  dared  to  hope. 

USE   OF  THE   ROCK-OIL  AS   A  LUBRICATOR   FOR   MACHINERY 

A  portion  of  the  rectified  oil  was  sent  to  Boston  to  be  tested  upon  a  trial  apparatus 
there,  but  I  regret  to  say  that  the  results  have  not  been  communicated  to  me  yet.  As  this 
oil  does  not  gum  or  become  acid  or  rancid  by  exposure,  it  possesses  in  that,  as  well  as 
in  its  wonderful  resistance  to  extreme  cold,  important  qualities  for  a  lubricator. 

CONCLUSION 

In  conclusion,  gentlemen,  it  appears  to  me  that  there  is  much  ground  for  encourage- 
ment in  the  belief  that  your  company  have  in  their  possession  a  raw  material  from 
which,  by  simple  and  not  expensive  process,  they  may  manufacture  very  valuable 
products. 

It  is  worthy  of  note  that  my  experiments  prove  that  nearly  the  whole  of  the  raw 
product  may  be  manufactured  without  waste,  and  this  solely  by  a  well-directed  process 
which  is  in  practice  one  of  the  most  simple  of  all  chemical  processes. 

There  are  suggestions  of  a  practical  nature,  as  to  the  economy  of  your  manufacture, 
when  you  are  ready  to  begin  operations,  which  I  shall  be  happy  to  make,  should  the 
company  require  it ;  meanwhile,  I  remain,  gentlemen, 

Your  obedient  servant, 

B.  Silliman,  Jr., 
Professor  of  Chemistry  in  Tale  College. 
New  Haven,  April  16,  1855. 


[275] 


NUMBER  2   (See  page  44) 


FIRST  ACT  OF  INCORPORATION  OF  THE  STANDARD  OIL 

COMPANY 

KNOW  ALL  MEN  BY  THESE  PRESENTS:  That  we,  John  D.  Rockefeller, 
Henry  M.  Flagler,  Samuel  Andrews,  and  Stephen  V.  Harkness,  of  Cleveland,  Cuyahoga 
County,  Ohio,  and  William  Rockefeller,  of  the  City,  County,  and  State  of  New  York, 
have  associated  ourselves  together  under  the  provisions  of  the  Act  of  the  Legislature 
of  the  State  of  Ohio,  entitled  An  Act  to  provide  for  the  creation  and  regulation  of 
incorporated  companies  in  the  State  of  Ohio,  passed  May  I,  1852,  and  the  Acts  sup- 
plementary thereto  passed  April  8,  1856,  and  the  Act  to  amend  the  last-named  Act, 
passed  February  14,  1861,  and  other  laws  of  the  State  of  Ohio  applicable  thereto, 
for  the  purpose  of  forming  a  body  corporate  for  manufacturing  petroleum  and  dealing 
in  petroleum,  and  its  products  under  the  corporate  name  of  THE  STANDARD 
OIL  COMPANY. 

And  we  do  certify  that  the  purpose  for  which  said  body  corporate  is  formed  is  the 
manufacture  of  petroleum  and  to  deal  in  petroleum  and  its  products. 

That  the  capital  stock  necessary  for  said  company,  and  the  amount  agreed  on 
as  composing  the  capital  stock,  is  the  sum  of  One  Million  Dollars. 

That  the  amount  of  each  share  of  capital  stock  is  One  Hundred  Dollars. 

That  the  name  of  the  place  where  said  manufacturing  establishment  shall  be 
located  for  doing  business  is  Cleveland  City,  Cuyahoga  County,  State  of  Ohio. 

That  the  name  and  style  by  which  said  manufacturing  establishment  shall  be  known 
is  THE  STANDARD  OIL  COMPANY. 

John  D.  Rockefeller, 
Henry  M.  Flagler, 
Samuel  Andrews, 
Stephen  V.  Harkness, 
William  Rockefeller. 

Cleveland,  Ohio,  January  10,  1870. 


[276] 


NUMBER  3   (See  page  47) 


AFFIDAVIT   OF  JAMES   H.   DEVEREUX 


[In  the  case  of  the  Standard  Oil  Company  vs.  William  C.  Scofield  et  al.  in  the  Court 
of  Common  Pleas,  Cuyahoga  County,  Ohio.] 

J.  H.  Devereux,  being  first  duly  sworn,  says  that  he  is  forty-eight  years  of  age,  and 
is  president  of  the  New  York,  Pennsylvania  and  Ohio  Railroad  ;  that  in  1868  he 
became  vice-president  of  the  Lake  Shore  Railroad,  and  remained  in  that  position 
as  well  as  president  and  general  manager  till  1873.  That  he  has  heard  read  the  state- 
ments of  Robert  Hanna  and  George  O.  Baslington,  in  their  affidavits  filed  herein 
in  respect  to  transportation  of  oil,  and  in  regard  thereto  he  has  to  say  that  his  experience 
with  the  oil  traffic  began  in  1868  when  he  went  upon  the  Lake  Shore  Railroad  as 
vice-president,  succeeding  Mr.  Stone  who  retired  from  ill  health;  that  the  only  written 
'  memoranda  connected  with  the  business  of  the  company  with  which  he  was  furnished 
was  a  book  in  which  it  was  stated — probably  in  Mr.  Stone's  handwriting — that  the 
representatives  of  the  various  oil  interests  of  Cleveland  would  agree  to  pay  a  rate  of  I 
cent,  per  gallon  on  crude  oil  moved  from  the  regions  to  Cleveland;  that  in  addition 
to  the  inevitable  friction  arising  from  the  competition  of  these  refiners  of  Cleveland — 
probably  aggregating  twenty-five  in  number,  was  the  further  difficulty  of  the  patent 
right  which  the  Pennsylvania  Railroad  claimed  to  the  transportation  of  oil,  and  the 
peculiar  differences  made  by  them  in  the  rates  given  to  refiners  at  Titusville,  Pittsburg, 
and  other  places  all  thoroughly  in  competition  with  the  then  very  limited  refining 
capacity  of  Cleveland;  that  he  took  up  the  subject  as  to  whether  the  Lake  Shore  Rail- 
road could  hope  to  compete  for  the  transportation  of  oil,  and  the  end  of  the  matter 
was  that  the  Jamestown  and  Franklin  Railroad  was  extended  from  Franklin  to  Oil 
City,  the  then  centre  of  the  producing  district,  and  a  sharper  contest  than  ever 
was  produced,  growing  out  of  the  opposition  of  the  Pennsylvania  Railroad  in  com- 
petition ;  that  such  rates  and  arrangements  were  made  by  the  Pennsylvania  Railroad, 
that  it  was  publicly  proclaimed  in  the  public  print  in  Oil  City,  Titusville,  and  other 
places  that  Cleveland  was  to  be  wiped  out  as  a  refining  centre  as  with  a  sponge,  and 
without  exception  the  oil  refiners  of  Cleveland  came  to  affiant  as  a  representative  of 
transportation,  and  with  a  single  exception  expressed  their  fears  that  they  would  have 
either  to  abandon  their  business  here  or  move  to  Titusville  or  other  points  in  the  Oil 
Regions ;  that  the  only  exception  to  this  decision  was  that  offered  by  Rockefeller,  Andrews 

I  [  277  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

and  Flagler,  who  on  its  assurance  that  the  Lake  Shore  Railroad  could  and  would  handle 
oil  as  cheaply  as  the  Pennsylvania  Company,  proposed  to  stand  their  ground  at  Cleve- 
land and  fight  it  out  on  that  line.  That  later,  about  1870,  the  first  move  was  made  to 
transport  refined  oil  by  rail  regularly  and  throughout  the  entire  year  from  Cleveland 
to  New  York.  That  prior  to  that  time  the  export  business  from  Cleveland  was  com- 
paratively limited  and  was  confined  to  the  summer  months,  most  of  that  portion  of 
the  traffic  refined  at  Cleveland  in  competition  with  Pittsburg,  Titusville,  and  other 
places  being  shipped  by  lake  and  canal,  and  as  affiant  remembers  at  a  rate  of  about 
one  dollar  per  barrel,  and  with  a  certainty  of  its  being  reduced  to  ninety  cents.  That  the 
rail  rate  was  nominally  two  dollars  on  refined  oil  from  Cleveland  to  New  York.  That 
Mr.  Flagler,  at  this  time  representing  Rockefeller,  Andrews  and  Flagler,  proposed  to 
make  regular  monthly  shipments  by  rail  throughout  the  year  provided  a  proper  rate 
could  be  made  for  the  business  then  offered,  this  rate  to  cover  transportation  of  crude 
from  the  region  to  Cleveland,  and  when  refined  from  Cleveland  to  New  York.  Rocke- 
feller, Andrews  and  Flagler  being  the  only  refiners  here  who  proposed  to  compete  for 
the  export  business  or  offered  oil  for  the  entire  haul  from  the  regions  to  Cleveland 
and  thence  to  New  York;  that  Mr.  Flagler's  proposition  was  to  assure  to  the  Lake 
Shore  Railroad  sixty  carloads  of  refined  oil  per  day*  from  Cleveland  to  New  York 
at  a  rate  of  $1 .75  per  barrel  from  the  regions  to  New  York,  being  thirty-five  cents 
per  barrel  for  crude  from  the  regions  to  Cleveland  and  $1 .30  per  barrel  for  refined 
from  Cleveland  to  New  York;  and  Rockefeller,  Andrews  and  Flagler  were  to  assume 
all  risk  and  losses  from  fire  or  other  accidents.  That  affiant  took  this  proposition 
into  consideration  and  made  careful  computation  of  the  cost  of  this  transportation 
to  the  railroad,  which  cost  is  the  proper  basis  in  fixing  the  rate  to  be  charged;  that 
affiant  found  that  the  then  average  time  for  a  round  trip  from  Cleveland  to  New  York 
for  a  freight  car  was  thirty  days;  to  carry  sixty  cars  per  day  would  require  1,800  cars 
at  an  average  cost  of  $500  each,  making  an  investment  of  $900,000  necessary  to  do 
this  business,  as  the  ordinary  freight  business  had  to  be  done ;  but  affiant  found  that 
if  sixty  carloads  could  be  assured  with  absolute  regularity  each  and  every  day,  the  time 
for  a  round  trip  from  Cleveland  to  New  York  and  return  could  be  reduced  to  ten  days, 
by  moving  these  cars  in  solid  trains  instead  of  mixing  oil  cars  in  other  trains,  as  would 
be  necessary  when  transported  in  small  quantities  and  by  moving  the  oil  trains  steadily 
without  regard  to  other  cars ;  that  by  thus  reducing  the  time  to  ten  days  for  a  round- 
trip,  only  six  hundred  cars  would  be  necessary  to  do  this  business  with  an  investment 
therefore  of  only  $300,000.  That  the  regularity  of  the  traffic  would  insure  promptness 
in  the  unloading  and  return  of  the  cars ;  that  upon  these  considerations  affiant  con- 
cluded that  Mr.  Flagler's  proposition  offered  to  the  railroad  company  a  larger  measure 
of  profit  than  would  or  could  ensue  from  any  business  to  be  carried  under  the  old 

♦  This  must  have  been  in  1872,  not  1870.   Up  to  1872  the  capacity  of  the  Standard  was  but  1,500 
barrels  of  crude  a  day. 

[278] 


APPENDIX,  NUMBER  III 

arrangements,  and  such  proved  to  be  pre-eminently  the  case;  that  the  proposition  of 

Mr.  Flagler  was  therefore  accepted,  and  in  affiant's  judgment  this  was  the  turning-point 

which  secured  to  Cleveland  a  considerable  portion  of  the  export  traffic.  That  this 

arrangement  was  at  all  times  open  to  any  and  all  parties  who  would  secure  or  guarantee 

a  like  amount  of  traffic  or  an  amount  sufficient  to  be  treated  and  handled  in  the  same 

speedy  and  economical  way,  the  charges  for  transportation  being  always  necessarily 

based  upon  the  actual  cost  of  the  service  to  the  railroad,  and  whenever  any  shipper 

or  shippers  will  unite  to  reduce  the  cost  of  transportation  to  the  railroad,  to  refuse  to 

give  them  the  benefit  of  such  reduction  would  be  to  the  detriment  of  the  public,  the 

consumers,  who  in  the  end  pay  the  transportation  charges.  Affiant  says  that  this 

legitimate  and  necessary  advantage  of  the  large  shipper  over  the  smaller  he  explained 

to  Mr.  Hanna  and  Mr.  Baslington,  and  they  recognised  its  propriety,  and  affiant  offered 

them  the  same  terms  if  by  themselves  or  with  others  they  would  assure  him  like 

quantities  with  like  regularity,  thus  securing  like  speed  and  economy  in  transportation. 

And  further  affiant  saith  not. 

J.  H.  Devereux. 

Subscribed  in  my  presence  and  sworn  to  before  me  this  thirteenth  day  of  November, 

1880. 

J.  C.  Cannon, 

Notary  Public  in  and  for  Said  County. 


[279] 


NUMBER  4  (See  page  55) 

TESTIMONY  OF  HENRY  M.  FLAGLER  ON  THE  SOUTH 
IMPROVEMENT  COMPANY 

[Proceedings  in  Relation  to  Trusts,  House  of  Representatives,  1888.  Report  Num- 
ber 31 12,  pages  289-290.] 

A.  .  .  .  Neither  of  the  Messrs.  Rockefeller,  Colonel  Payne,  nor  myself,  nor  any 
one  connected  with  the  Standard  Oil  Company,  ever  had  any  confidence  in  or  regard 
for  the  scheme  known  as  the  South  Improvement  Company.  We  did  not  believe  in 
it,  but  the  view  presented  by  other  gentlemen  was  pressed  upon  us  to  such  an  extent 
that  we  acquiesced  in  it  to  the  extent  of  subscribing  our  names  to  a  certain  amount 
of  the  stock,  which  was  never  paid  for.  The  company  never  did  a  dollar's  worth  of 
business,  and  never  had  any  existence  other  than  its  corporative  existence,  which  it 
obtained  through  its  charter.  Through  its  president  it  negotiated  certain  railroad 
contracts,  which,  as  I  remember  now,  were  signed  by  the  company  and  by  the  officers 
of  the  railroad.  Those  contracts  were  held  in  escrow  a  few  weeks  and  were  destroyed 
or  cancelled  by  mutual  consent. 

Q.  Who  presented  these  views  to  you  gentlemen  ?  Who  was  the  person  that  had 
charge  of  this  South  Improvement  Company's  scheme  ? 

A.  I  think  Mr.  Warden  and  the  Messrs.  Logan  were  the  great  leaders  in  the  South 
Improvement  Company  policy. 


[  280  ] 


NUMBER  5   (See  page  62) 

CONTRACT  BETWEEN  THE  SOUTH  IMPROVEMENT  COMPANY 
AND  THE  PENNSYLVANIA  RAILROAD  COMPANY,  DATED 
JANUARY  18,  1872 

[Proceedings  in  Relation  to  Trusts,  House  of  Representatives,  1888.  Report  Num- 
ber 31 12,  pages  357-361.] 

Agreement  made  and  entered  into  this  eighteenth  day  of  January,  in  the 
year  eighteen  hundred  and  seventy-two,  by  and  between  the  South  Improvement 
Company,  a  corporation  organised  and  existing  under  the  laws  of  the  State  of  Penn- 
sylvania, party  hereto  of  the  first  part,  and  the  Pennsylvania  Railroad  Company, 
on  its  own  behalf  and  on  behalf  of  all  other  railroad  companies,  whose  roads  are  con- 
trolled, owned,  or  leased  by  it,  or  with  which  it  has  sufficient  running  arrangements, 
which  other  roads  are  herein  described  as  the  connections  of  the  said  Pennsylvania 
Railroad  Company,  party  hereto  of  the  second  part. 

WITNESSETH: 

Whereas,  the  party  hereto  of  the  first  part  has  been  organized  for  the  purpose,  among 
other  things,  of  increasing,  facilitating,  and  developing  the  trade  in  and  the  conveyance 
and  transportation  of  petroleum  and  its  products,  and  for  that  purpose  proposes, 
among  other  things,  to  expend  large  sums  of  money  in  the  purchase,  erection,  and 
construction  of,  and  maintaining  and  conducting  works  for  storage,  distillation,  and 
refining,  warehousing  and  transportation,  and  in  various  other  ways,  upon  the  in- 
ducement, among  other  things,  of  this  contract. 

And  Whereas,  the  magnitude  and  extent  of  the  business  and  operations  proposed 
to  be  carried  on  by  the  party  hereto  of  the  first  part  will  greatly  promote  the  interest 
of  the  party  hereto  of  the  second  part,  and  make  it  desirable  for  it,  by  fixing  certain 
rates  of  freight,  drawbacks,  and  rebates,  and  by  the  other  provisions  of  this  agreement, 
to  encourage  the  outlay  proposed  by  the  party  hereto  of  the  first  part,  and  to  facilitate 
and  increase  the  transportation  to  be  received  from  it. 

And  Whereas ',  it  has  been  agreed  by  and  between  the  party  hereto  of  the  second 
part,  for  itself  and  its  connections,  the  Erie  Railroad  Company,  for  itself  and  its  con- 
nections, and  the  New  York  Central  Railroad  Company,  for  itself  and  its  connections, 
that  the  business  of  transporting,  by  railroad,  crude  petroleum  and  its  products, 

[281] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

toward  the  Atlantic  coast,  from  the  points  of  production  and  refining,  on  their  lines  of 
road  shall  be  allotted  by  the  party  hereto  of  the  first  part,  to  the  said  three  companies, 
in  the  proposition  of  forty-five  (45)  per  cent,  of  the  whole  to  the  Pennsylvania  Railroad 
Company,  for  itself  and  its  connections,  including  the  Philadelphia  and  Erie  Railway, 
the  Northern  Central  Railway,  the  Alleghany  Valley  Railroad,  Camden  and  Amboy 
Railway,  the  Pennsylvania  Company,  and  all  other  railroads  which  are,  or  may  be, 
controlled,  owned,  and  leased  by  it,  or  with  which  it  has,  or  may  have,  sufficient  running 
arrangements;  twenty-seven  and  a  half  (27^)  per  cent,  of  the  whole  to  the  Erie  Railway 
Company,  for  itself  and  its  connections,  and  twenty-seven  and  a  half  (27^)  per  cent, 
of  the  whole  to  the  New  York  Central  Railroad  Company  for  itself  and  its  connections, 
and  that  the  transportation  beyond  Cleveland  and  Pittsburg  over  the  railroads  of 
the  said  companies  and  their  connections,  in  other  directions  than  toward  the  Atlantic 
coast,  west  from  said  points  of  production  and  refining,  shall  be  allotted  by  the  party 
hereto  of  the  first  part,  in  the  proportion  of  one-third  thereof,  to  the  party  hereto  of  the 
second  part,  for  itself  and  its  western  connections,  and  the  remainder  to  other  railroads. 
Now,  therefore,  this  agreement  witnesseth :  That  the  parties  hereto  for  themselves 
and  their  successors,  in  consideration  of  the  promises,  of  the  mutual  execution  hereof, 
and  of  the  mutual  advantages  hereby  conferred,  have  covenanted  and  agreed,  and 
hereby  do  covenant  and  agree  each  with  the  other,  as  follows: 

ARTICLE    FIRST 

The  party  hereto  of  the  first  part  covenants  and  agrees: 

1.  To  furnish  to  the  party  hereto  of  the  second  part  for  transportation,  such  a 
proportion  of  the  crude  petroleum  and  its  products,  owned  or  controlled  by  the  party 
hereto  of  the  first  part,  as  shall  give  to  the  party  hereto  of  the  second  part  forty-five  (45) 
per  cent,  of  all  the  crude  petroleum  and  its  products,  sent  from  the  points  of  production 
and  refining  toward  the  Atlantic  coast,  by  the  said  Pennsylvania,  the  Erie,  and  the 
New  York  Central  railroads  and  their  connections,  and  thirty-three  and  one-third 
(33i)  Per  cent'  °f tnat  which  is  sent  west  of  Pittsburg  and  Cleveland  by  those  railroads 
and  their  connections. 

2.  To  provide  suitable  tankage  at  the  points  where  petroleum  is  produced,  on  the 
railroads  of  the  party  hereto  of  the  second  part  and  its  connections  in  which  to  receive 
crude  petroleum  preparatory  to  shipment,  with  the  necessary  pipes,  pumps,  racks, 
and  other  appliances  for  its  convenient  transfer  in  bulk  into  railroad  cars. 

3.  To  deliver  to  the  railroads  of  the  party  hereto  of  the  second  part,  and  its  con- 
nections, at  the  places  of  shipment,  and  to  receive  from  them,  at  the  places  of  des- 
tination, all  crude  petroleum  and  its  products  transported  over  their  roads  for  the  party 
of  the  first  part. 

4.  To  provide  at  the  places  of  destination  on  the  seaboard,  necessary  and  suitable 

[282] 


APPENDIX,  NUMBER  V 

yards,  wharves,  warehouses,  sheds,  tanks,  pipes,  pumps,  and  motive  power,  for  the 
reception  of  petroleum  and  its  products,  and  loading  vessels  therewith. 

5.  To  provide,  maintain,  and  operate  the  works  necessary  to  refine  crude  petroleum 
upon  the  largest  scale  practicable,  and  with  such  skill,  and  on  such  a  system  of  organi- 
sation and  division  of  labour,  as  will  secure  both  efficiency  and  economy;  and  for  that 
purpose  and  for  the  purpose  of  developing  and  increasing  the  petroleum  trade  of  the 
country,  to  provide  and  maintain  all  suitable  and  necessary  means  and  facilities. 

6.  To  keep  records  of  the  transportation  over  the  railroads  of  the  party  hereto  of 
the  second  part,  and  its  connections,  and  so  far  as  it  can  obtain  the  same,  over  the 
Erie  and  the  New  York  Central  railroads  and  their  connections,  of  all  petroleum 
and  its  products,  showing  the  number  of  barrels  of  forty-five  gallons  each  in  bulk, 
and  the  number  of  barrels  of  forty-seven  gallons  each  in  barrels,  carried  by  each  road 
with  the  points  of  receiving  and  delivery,  and  the  amount  of  freight  received  by  each 
road  for  such  transportation,  which  records  shall  at  all  reasonable  times  be  open  to 
the  inspection  of  the  duly  constituted  representatives  of  the  party  hereto  of  the  second 
part. 

Monthly  abstracts  of  all  such  records  shall  be  regularly  sent  to  the  party  of  the 
second  part. 

7.  To  pay  the  party  of  the  second  part  weekly  for  all  transportation  over  its  roads 
and  its  connections,  of  petroleum  and  its  products,  such  gross  rates  and  half-rates 
of  freight  as  are  hereinafter  specified,  less  the  rebates  and  drawbacks  hereinafter 
provided  to  be  retained  by  the  party  hereto  of  the  first  part  for  its  own  use. 

ARTICLE    SECOND 

The  party  hereto  of  the  second  part  covenants  and  agrees: 

1.  That  the  party  hereto  of  the  second  part  will  pay  and  allow  to  the  party  hereto 
of  the  first  part,  for  its  own  use,  in  all  petroleum  and  its  products,  transported  over 
the  railroads  of  the  party  hereto  of  the  second  part  and  its  connections,  for  the  party 
hereto  of  the  first  part,  rebates,  and  on  all  transported  for  others,  drawbacks,  at  the  rates 
hereinafter  provided,  except  in  the  case  specified  in  Article  Third. 

2.  To  deliver  to  the  party  hereto  of  the  first  part  all  petroleum  and  its  products 
in  packages,  transportation  over  the  railroads,  of  the  party  hereto  of  the  second  part, 
and  its  connections,  by  whomsoever  shipped,  and  consigned  to  the  party  of  the  first 
part,  at  the  warehouses  of  the  party  of  the  first  part,  at  the  seaboard,  and  inland, 
at  the  depots  of  the  party  of  the  second  part,  at  the  places  of  destination,  and  to  deliver 
all  petroleum  and  its  products,  in  bulk,  owned  by  or  consigned  to  the  said  party  of 
the  first  part,  at  any  point  required  on  the  line  of  the  railroads,  of  the  party  of  the 
second  part  and  its  connections. 

3.  To  transport  and  deliver  petroleum  and  its  products  over  the  railroads  of  the 

[283] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

party  of  the  second  part  and  its  connections,  at  gross  rates,  which  shall  at  no  time 
exceed  the  following,  without  the  consent  of  both  parties  hereto. 

From  any  point  on  the  Oil  Creek  and  Allegheny  River  Railroad  to  Oil  City,  Union, 
Corry  or  Irvineton,  which  are  herein  designated  as  common  pointsy  on  each  barrel 
of  forty-five  gallons  in  bulk,  and  on  each  barrel  of  forty-seven  gallons  in  barrels,  thirty 
cents. 

ON   CRUDE    PETROLEUM 

From  any  common  point  to  Cleveland,  for  each  barrel  of  45  gallons £0.80 

"  Pittsburg,         "  "       "   "       "       80 

"  New  York,       "  "      "   "       "       2.56 

"  Philadelphia,  "  "       "    "       "       2.41 

"  Baltimore,       "  "      "   "       "       2.41 

"  Boston,  "  "      u    "       "       2.71 

All  other  points,  except  those  on  the  Oil  Creek  and  Allegheny  River  Railway,  to 
the  places  of  destination  last  named,  the  same  rates  as  from  the  common  points. 

ON  REFINED  OIL,  BENZINE,  AND  OTHER  PRODUCTS  OF  THE  MANUFACTURE  OF    PETRO- 
LEUM 

From  Pittsburg  to  New  York,  for  each  barrel $2 .  00 

"  Philadelphia,    "             "      1 .85 

"  Baltimore,       "             "      1 .85 

From  Cleveland  to  Boston,                           "      2.15 

"            "         "  New  York,      "            "     2 .00 

"  Philadelphia,  "              "     1 .85 

"  Baltimore,        "             "      1.85 

From  any  common  point  to  New  York,  for  each  barrel 2 .  92 

"        "          "           "      "Philadelphia,"              "      2.77 

"       "          "           "      "  Baltimore,       "               "     2.77 

"        "          "           "      "  Boston,            "              "      3-07 

From  and  to  all  points  intermediate  between  the  points  aforesaid,  such  reasonable 
rates  as  the  party  of  the  second  part  shall  from  time  to  time  establish,  on  both  crude 
and  refined. 

From  Pittsburg,  Cleveland,  and  other  points,  to  places  west  of  Pittsburg  and  Cleve- 
land, such  reasonable  rates  as  the  party  of  the  second  part  may  deem  it  expedient 
from  time  to  time  to  establish. 

4.  To  pay  and  allow  to  the  party  hereto  cf  the  first  part,  on  all  petroleum  and  its 
products,  transportation  for  it  over  the  railroads  of  the  party  of  the  second  part  and 
its  connections,  the  following  rebates,  and  on  all  transported  for  other  parties,  draw- 
backs of  like  amounts,  as  the  rebates  from  the  gross  rates,  the  same  to  be  deducted 
and  retained  by  the  party  hereto  of  the  first  part,  for  its  own  use  from  the  amounts 
of  freights,  payable  to  the  party  of  the  second  part. 

[284] 


' 


APPENDIX,  NUMBER  V 

ON  THE   TRANSPORTATION   OF   CRUDE    PETROLEUM 

rom  the  gross  rate  from  any  common  point  to  Cleveland,  a  rebate  per  barrel  of.lo.40 

"     "  Pittsburg,          "       "  "  "  .40 

"    "   New  York,        "       "  "  "  1.06 

"     "    Philadelphia,      "       "  "  "  1.06 

"    "    Baltimore,          "       "  "  "  1.06 

"    "    Boston,              "       "  «  «  1.06 


From  the  gross  rate  from  all  other  points,  and  the  six  places  of  destination  last  named 
rebates  the  same  as  on  the  rates  from  the  common  points. 

ON    THE    TRANSPORTATION    OF    REFINED     OIL,    BENZINE,    AND     OTHER     PRODUCTS    OF 


THE    MANUFACTURE    OF    PETROLEUM 

From  the  gross  rates 

from  Pittsburg  to  New  York,  a  rebate  per  barrel  of #0.50 

«       t 

t       tt       tt 

"Philadelphia,       "       "       "      " 50 

u          f 

t          tt           tt 

"  Baltimore,           "       "       "      " 50 

tt         t 

t         tt          it 

"    Cleveland  to  Boston,               "       "       "      " 50 

*t        t 

t         tt          tt 

"New  York,          "       "       M      " 50 

tt         f 

t          it           tt 

"Philadelphia,       "        "       "      " 50 

u         t 

t         if          it 

"  Baltimore,           "       "       "      " 50 

tt         t 

t         tt          ft 

"     any  common  point  to  New  York,  a  rebate  per  barrel  of .  1 .  32 

ft         I 

t         ft          tt 

"       "         "            "     "Philadelphia,  "          "       "      ".1.32 

tt         f 

{         tt          tt 

"      "         "           "     "Baltimore,        "         "       "      ".1.32 

ft         t 

f         ft          ft 

"      "         "           "     "Boston,            "         "       "      ".1.32 

From  the  gross  rates  to  and  from  all  points,  intermediate  between  the  above  points, 
a  rebate  or  drawback  of  one-third  of  the  gross  rate,  shall  be  paid. 

From  the  gross  rates  from  Pittsburg,  Cleveland,  and  other  points,  to  places  west 
of  the  meridians  of  Pittsburg  and  Cleveland,  a  rebate  or  drawback  of  one-third  of 
the  gross  rate  shall  be  paid. 

5.  To  charge  to  all  other  parties  (excepting  such  as  are  referred  to  in  Article  3d) 
for  the  transportation  of  petroleum  and  its  products,  rates  which  shall  not  be  less 
than  the  gross  rates  above  specified,  and  should  at  any  time  any  less  rate  be  charged, 
directly  or  indirectly,  either  by  way  of  rebate,  commission,  allowances,  or  upon  any 
pretext  whatsoever,  the  same  reduction  per  barrel  shall  be  made  to  the  party  hereto 
of  the  first  part,  from  the  net  rates  provided  for  them,  on  all  transportation  for  them 
during  the  period  for  which  such  reduction  shall  be  made  to  others. 

6.  To  permit  the  party  hereto  of  the  first  part,  if,  in  its  judgment,  the  currents  of 
trade  should  so  require,  temporarily  to  increase  or  diminish  the  proportion,  as  herein 
provided  to  the  party  hereto  of  the  second  part,  for  itself  and  its  connections,  as  the 
whole  business  of  transporting  petroleum  and  its  products,  as  between  the  party  hereto 
of  the  second  part,  the  Erie  Railway  Company  and  the  New  York  Central  Railroad 
Company.  The  party  of  the  second  part  in  such  case,  to  receive  from  the  party  hereto 

[285] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

of  the  first  part,  in  full  payment  or  indemnity,  for  the  excess  or  deficiency,  one-half 
the  net  schedule  rates  on  such  excess  or  deficiency;  the  other  half  to  be  paid  pro  rata 
to  the  said  other  companies,  whose  apportioned  quantity  of  transportation  shall  thus 
be  varied;  but  such  diversion  of  business  shall  not,  at  any  time,  exceed  one  week,  nor 
be  repeated  without  an  interval  of  at  least  sixty  days,  unless  with  the  consent  of  the 
party  hereto  of  the  second  part.  Also,  that  whenever  from  time  to  time,  as  aforesaid, 
a  temporary  diversion  of  a  part  of  the  apportioned  transportation  of  the  party  of  the 
second  part,  to  the  other  railroads  aforesaid,  or  to  either  of  them,  shall  become  necessary, 
cars  of  the  party  of  the  second  part  may  be  loaded  by  the  party  of  the  first  part,  and 
sent  away  over  such  other  railroads,  or  either  of  them,  but  the  cars  so  sent  away  shall 
be  returned  without  unnecessary  delay,  and  in  as  good  order  as  when  taken  to  the 
railroads  of  the  party  of  the  second  part,  and  mileage  at  the  usual  rates  paid  for  their 
use  while  absent. 

7.  To  furnish  with  as  much  regularity  as  possible,  at  all  times,  good  and  sufficient 
cars,  and  other  means  suitable  and  necessary  for  the  safe  and  prompt  transportation 
of  all  crude  petroleum  and  its  products,  either  in  bulk  or  in  barrels,  which  the  party 
hereto  of  the  first  part  shall  desire  to  send  from  one  point  to  another  (and  which 
shall  be  supplied  with  as  much  regularity  as  possible),  on  or  over  the  railroads  of  the 
party  of  the  second  part  and  its  connections. 

8.  To  make  manifests  or  way-bills  of  all  petroleum  or  its  products,  transported 
over  any  portion  of  the  railroads  of  the  party  of  the  second  part  or  its  connections, 
which  manifests  shall  state  the  name  of  the  consignor,  the  place  of  shipment,  the  kind 
and  actual  quantity  of  the  article  shipped,  the  name  of  the  consignee,  and  the  place 
of  destination,  with  the  rate  and  gross  amount  of  freight  and  charges,  and  to  send 
daily  to  the  principal  office  of  the  party  of  the  first  part,  duplicates  of  all  such  mani- 
fests or  way-bills. 

ARTICLE    THIRD 

And  it  is  hereby  further  covenanted  and  agreed  by  and  between  the  parties  hereto, 
that  the  rebates  hereinbefore  provided  for  the  party  hereto  of  the  first  part,  may  be 
made  to  any  other  party  who  shall  furnish  an  equal  amount  of  transportation,  and 
who  shall  possess  and  use  works,  means,  and  facilities  for  carrying  on  and  promoting 
the  petroleum  trade  equal  to  those  possessed  and  used  by  the  party  hereto  of  the  first 
part. 

ARTICLE    FOURTH 

And  it  is  hereby  further  covenanted  and  agreed  by  and  between  the  parties  hereto, 
that  the  party  hereto  of  the  second  part  shall  at  all  times  co-operate,  as  far  as  it  legally 
may,  with  the  party  hereto  of  the  first  part,  to  maintain  the  business  of  the  party  hereto 
of  the  first  part,  against  loss  or  injury  by  competition,  to  the  end  that  the  party  hereto 
of  the  first  part  may  keep  up  a  remunerative,  and  so  a  full  and  regular  business,  and 

[286] 


APPENDIX,  NUMBER  V 

to  that  end  shall  lower  or  raise  the  gross  rates  of  transportation  over  its  railroads 
and  connections,  as  far  as  it  legally  may,  for  such  times,  and  to  such  extent  as  may 
be  necessary  to  overcome  such  competition.  The  rebates  and  drawbacks  to  the  party 
of  the  first  part  to  be  varied  pari  passu  with  the  gross  rates. 

ARTICLE    FIFTH 

It  is  hereby  mutually  agreed  by  and  between  the  parties  hereto  that  for  the  purpose 
of  meeting  such  exigencies  as  may  from  time  to  time  require  change  of  the  rates  of 
transportation  herein  provided,  each  party,  on  ten  days'  written  notice  from  the  other, 
shall  appoint  a  person  on  behalf  of  such  party,  and  the  two  persons  thus  appointed, 
shall  have  power  to  change  and  adjust  the  rates,  which  shall  go  into  effect  on  being 
approved  by  the  said  parties  hereto. 

ARTICLE    SIXTH 

It  is  further  mutually  agreed  by  and  between  the  parties  hereto  that  the  gross  rates 
of  freight  to  the  party  hereto  of  the  first  part  shall  at  all  times  be  kept  as  near  to  the 
net  rates  as  is  consistent  with  the  interests  of  the  party  hereto  of  the  first  part,  and  that 
whenever  in  the  judgment  of  the  party  hereto  of  the  first  part  it  is  expedient  to  lower 
the  rebate  below  the  rate  above  specified,  it  may  do  so,  and  from  time  to  time  raise 
the  same  again,  not,  however,  above  the  rate  hereinbefore  specified.  The  party  hereto 
of  the  first  part,  from  time  to  time  shall  notify  the  party  of  the  second  part  in  writing 
of  the  change  required,  whereupon  the  party  hereto  of  the  second  part  shall  forthwith 
make  a  corresponding  change  of  such  gross  rates. 

ARTICLE    SEVENTH 

It  is  further  mutually  agreed  by  and  between  the  parties  hereto,  that  this  agreement 
shall  continue  and  remain  in  force  for  the  period  of  not  less  than  five  years,  and  shall 
not  then,  nor  thereafter  terminate,  until  one  of  the  parties  shall  have  given  twelve 
months'  written  notice  to  terminate  it. 

ARTICLE    EIGHTH 

It  is  further  mutually  agreed  by  and  between  the  parties  hereto,  that  if  any  doubt, 
question,  difference,  cause,  or  suit  shall  at  any  time  or  times,  hereafter,  arise  or  happen 
between  the  said  parties  to  these  presents,  touching  the  construction  of  these  presents, 
or  any  clause,  matter,  or  thing  herein  contained,  or  any  other  matters,  cause,  or  thing 
whatsoever,  in  any  wise  relating  to  or  concerning  this  agreement,  and  such  doubt, 
question,  difference,  or  dispute,  shall  not  be  fully  settled  by  the  parties  to  these  presents 
within  one  calendar  month  after  the  same  shall  arise,  then,  in  every  such  case,  upon 

[287] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  request  in  writing  of  either  of  the  said  parties  hereto,  specifying  such  doubt,  ques- 
tion, difference,  or  dispute,  it  shall  be  committed  and  referred  to  the  hearing  and 
arbitration  of  three  disinterested  persons;  one  of  them  to  be  chosen  by  the  party  of 
the  first  part,  another  of  them  to  be  chosen  by  the  party  of  the  second  part,  and  each 
party  on  ten  days'  notice  in  writing  from  the  other,  shall  make  such  choice,  and  appoint 
a  disinterested  person  in  behalf  of  such  party,  but,  if  either  party  on  such  notice 
shall  within  such  ten  days  fail  to  make  an  appointment,  the  person  appointed  by  the 
other  party  shall  choose  the  second  disinterested  person,  and  the  third  disinterested 
person  shall  be  chosen  within  one  calendar  month  next  after  such  request;  and  the 
award,  order,  or  determination  of  the  said  three  persons,  to  be  chosen  as  aforesaid,  or 
any  two  of  them,  shall  be  binding  and  conclusive  on  the  parties  hereto,  and  shall 
be  performed  and  kept  by  them,  without  any  further  suit  or  trouble  whatsoever; 
provided  such  award,  order,  or  determination,  be  made  in  writing,  under  the  hands 
of  the  said  three  persons,  or  of  any  two  of  them,  within  the  space  of  sixty  days  after 
all  the  persons  shall  be  so  selected,  as  aforesaid.  And  for  the  further  and  better  en- 
forcing the  performance  of  the  award,  so  to  be  made,  as  aforesaid,  the  reference  or 
submission  for  or  in  respect  of  the  same,  may,  at  the  option  of  any  of  the  parties  to 
these  presents,  from  time  to  time  be  made  as  a  matter  of  course,  a  rule  of  court  in 
any  court  of  record. 

In  witness  whereof,  the  said  South  Improvement  Company  and  Pennsylvania 
Railroad  Company  have  caused  their  respective  corporate  seals  to  be  hereto  affixed, 
and  these  presents  to  be  subscribed  by  their  respective  presidents,  the  day  and  year 
first  above  written. 

South  Improvement  Company. 
[SEAL]  By  P.  H.  Watson, 

President. 

Pennsylvania  Railroad  Company. 
[SEAL]  By  J.  Edgar  Thompson, 

President. 
Attest:  Joseph  Lesley,  Secretary. 


[288] 


NUMBER  6   (See  page  63) 

STANDARD    OIL    COMPANY'S    APPLICATION    FOR    INCREASE    OF 
CAPITAL   STOCK   TO   £2,500,000   IN    1872 

To  the  Secretary  of  the  State  of  Ohio: 

The  undersigned,  being  a  majority  of  the  Board  of  Directors  of  THE 
STANDARD  OIL  COMPANY  OF  CLEVELAND,  OHIO,  do  hereby  certify 
that  on  the  first  day  of  January,  a.d.  1872,  at  the  annual  meeting  of  the  stockholders 
of  said  company  held  at  its  office  in  Cleveland,  Cuyahoga  County,  Ohio,  by  a  vote 
then  and  there  taken,  all  the  stockholders  of  said  company  being  present  and  voting 
therefor,  it  was  resolved  and  agreed  by  each  and  all  of  them,  that  the  capital  stock 
of  said  company  be  increased  the  sum  of  One  Million  Five  Hundred  Thousand 
Dollars,  thereby  making  the  capital  stock  of  said  company  Two  Millions  Five 
Hundred  Thousand  Dollars,  which  action  of  the  stockholders  was  as  follows,  to  wit: 

Resolved,  and  it  is  hereby  agreed  by  each  and  all  of  us,  that  the  capital  stock  of 
this  company,  namely,  The  Standard  Oil  Company  of  Cleveland,  Ohio,  be  increased 
to  the  sum  of  Two  Millions  Five  Hundred  Thousand  Dollars,  and  it  is  also  agreed, 
and  the  proper  officers  of  the  company  are  hereby  instructed  to  take  the  requisite 
steps  to  so  increase  said  capital  stock. 

John  D.  Rockefeller,  O.  B.  Jennings,  B.  Brewster,  William  Rockefeller, 
S.  V.  Harkness,  H.  M.  Flagler,  T.  P.  Handy,  S.  Andrews,  A.  Stone,  Jr., 
S.  Witt,  Stockholders. 

Cleveland,  O.,  January  1st,  A.D.   1 872. 

And  afterward  said  meeting  was  adjourned.        Henry  M.  Flagler,  Secretary. 

And  we  further  certify  that  the  whole  amount  of  such  increase  of  capital  stock 
has  been  paid  to  said  company,  in  money,  that  no  note,  bill,  bond,  or  other  security 
has  been  taken  for  the  same,  or  any  part  thereof,  and  that  the  credit  of  the  company 
has  not  been  used  directly  or  indirectly  to  raise  funds  to  pay  the  same  or  any  part 
thereof. 

IN  WITNESS  WHEREOF,  We  hereunto  set  our  names  at  Cleveland,  Ohio, 
this  ninth  day  of  February,  a.d.  1872. 

John  D.  Rockefeller,  Henry  M.  Flagler,  Samuel  Andrews,  Stephen  V. 
Harkness,  Directors. 

[289] 


NUMBER  7  (Sec  page  67) 


AFFIDAVITS  OF  GEORGE  O.   BASLINGTON 

[In  the  case  of  the  Standard  Oil  Company  vs.  William  C.  Scofield,  et  al.f  in  the 
Court  of  Common  Pleas,  Cuyahoga  County,  Ohio.] 

In  the  spring  of  1869,  they  (Hanna,  Baslington  &  Company)  began  the  construc- 
tion of  refining  works  just  above  the  Atlantic  depot  on  the  west  side  of  the  Cleveland 
and  Columbus  Railroad  track,  and  invested  in  the  construction  of  the  works  about 
£67,000,  which  works  were  completed  so  as  to  commence  the  refining  business  about 
the  first  of  June,  1869,  and  from  that  time  up  to  about  the  first  of  July,  1870,  the  works 
had  netted  a  profit  of  £40,000  over  all  expenses  of  running  said  works,  being  about 
60  per  cent,  on  the  capital  invested  per  annum,  and  from  that  time  on  up  to  the  first 
of  April,  1872,  said  firm  cleared  £21,000,  being  about  30  per  cent,  per  annum  on  the 
investment  from  the  time  that  said  firm  commenced  business. 

Some  time  in  February,  1872,  the  firm  received  a  message  from  the  Standard  Oil 
Company  requesting  said  firm  to  have  an  interview  as  to  the  disposal  of  the  refining 
works  of  said  firm;  that  they  were  indisposed  to  enter  into  any  arrangement  for  the 
disposition  of  said  works  because  the  investment  of  capital  in  said  works  had  proved 
abundantly  profitable  to  their  satisfaction  and  they  had  no  disposition  whatever  to 
part  with  the  works;  but  upon  investigation  they  were  somewhat  surprised  to  find 
that  the  Standard  Oil  Company  had  already  obtained  the  substantial  control  of  the 
different  refineries  in  the  City  of  Cleveland;  that  it  had  obtained  such  rates  of  trans- 
portation of  crude  and  refined  oil  from  the  different  railroads  that  it  was  impossible 
for  them  to  compete  with  it,  and  upon  an  interview  which  was  had  by  Mr.  Hanna 
and  affiant  with  Mr.  Rockefeller  who  was  at  the  time  president  of  the  Standard  Oil 
Company.  Mr.  Flagler,  the  secretary  of  the  company,  being  present,  Mr.  Rockefeller 
in  substance  declared  or  said  that  the  Standard  Oil  Company  had  such  control  of 
the  refining  business  already  in  the  City  of  Cleveland  that  he  thought  said  firm  of 
Hanna,  Baslington  &  Company  could  not  make  any  money;  that  there  was  no  use 
for  them  to  attempt  to  do  business  in  competition  with  the  Standard  Oil  Company. 

Affiant  further  says  that  after  having  had  an  interview  both  with  Mr.  Watson, 
who  was  the  president  of  a  company  called  "The  South  Improvement  Company," 
and  Mr.  Devereux,  who  was  the  general  manager  of  the  Lake  Shore  Road,  he  became 

[290] 


APPENDIX,  NUMBER  VII 

satisfied  that  no  arrangement  whatever  could  be  effected  through  which  transportation 
could  at  least  be  obtained  on  the  Lake  Shore  Road  that  would  enable  their  firm  to 
compete  with  the  Standard  Oil  Company,  the  works  of  said  Hanna,  Baslington  & 
Company,  being  so  situated  that  they  could  only  obtain  their  crude  oil  through  the 
line  of  the  Lake  Shore  Road.  And  finding  that  the  Standard  Oil  Company  had  such 
special  rates  of  transportation  that  unless  the  firm  of  Hanna,  Baslington  &  Company 
were  enabled  to  bring  as  much  oil  as  the  Standard  Oil  Company,  that  it  was  impossible 
for  said  firm  of  Hanna,  Baslington  &  Company  to  obtain  a  fair  competing  rate  with 
the  Standard  Oil  Company.  They  at  least  came  to  the  conclusion  that  it  was  better 
for  them  to  take  what  they  could  get  from  the  Standard  Oil  Company  and  let  their 
works  go. 

And  affiant  further  says  that  under  these  circumstances  they  sold  their  works  to 
the  Standard  Oil  Company,  which  were  on  the  day  of  the  sale  worth  at  least  $100,000, 
for  $45,000  because  that  was  all  they  could  obtain  from  them,  and  works  too  which 
in  cash  cost  them  not  less  than  $76,000,  and  which  with  a  fair  competition  would  have 
paid  them  an  income  of  not  less  than  30  per  cent,  per  annum  on  the  investment. 

Affiant  further  says  that  at  the  interviews  which  he  had  with  Mr.  Rockefeller,  Mr. 
Rockefeller  told  him  that  the  Standard  Oil  Company  already  had  control  of  all  the 
large  refineries  in  the  City  of  Cleveland  and  there  was  no  use  for  them  to  undertake 
to  compete  against  the  Standard  Oil  Company,  for  it  would  only  ultimate  in  their 
being  wiped  out,  or  language  to  that  effect. — (November  1,  1880.) 

George  O.  Baslington  being  duly  sworn  (November  12,  1880)  says:  That  the  firm 
of  Hanna,  Baslington  &  Company,  the  first  year  they  were  in  business,  made  profit 
amounting  to  a  little  less  than  $40,000  and  from  the  end  of  the  first  year  up  to  the 
time  of  the  sale  to  the  Standard  Oil  Company  they  made  no  profit  at  all.  At  the  time 
of  the  sale  the  firm  reserved  the  privilege  of  running  the  works  to  close  up  and  run 
them  up  to  about  April  1,  1872,  and  during  that  time  they  made  profit  to  the  amount 
of  about  $21,000.  At  the  time  my  former  affidavit  was  drawn  by  Mr.  Tyler,  I  stated 
these  facts  to  him. 

In  the  sale  of  the  works  to  the  Standard  Oil  Company  we  were  given  the  option 
to  take  cash  or  to  take  stock  in  the  Standard  Oil  Company  at  par.  We  decided  to 
and  did  take  cash,  and  one  reason  that  influenced  us  to  take  cash  was  that  we  were 
fearful  that  refining  oil  at  Cleveland  might  not  be  successful,  and  if  so,  the  cash  was 
better  than  the  stock,  and  affiant  wanted  the  cash  to  enable  him  to  embark  in  other 
pursuits. 


[29I  ] 


NUMBER  8   (See  page  72) 

ORGANISATION  OF  THE  PETROLEUM  PRODUCERS'  UNION  OF 

1872 

[From  "A  History  of  the  Rise  and  Fall  of  the  South  Improvement  Company," 
pages  8-10.] 

1.  The  territory  forming  the  Pennsylvania  petroleum  field  shall  be  divided  into 
sixteen  districts.     .     .     . 

2.  The  producers  in  each  district  shall  meet  at  some  convenient  place  and  choose 
one  or  more  (not  to  exceed  five)  men,  from  their  own  number,  through  whose  hands 
they  shall  pledge  themselves  to  sell  all  their  crude  oil. 

3.  It  shall  be  the  duty  of  these  committeemen  to  sell  the  crude  oil  coming  into  their 
hands:  First,  to  the  local  refiners;  second,  to  the  agents  of  the  refiners  located  in  distant 
cities,  as  may  be  designated  by  the  executive  committee;  and  third,  to  such  shippers, 
dealers,  and  exporters  as  may  be  named  by  the  executive  committee,  and  it  shall  be 
the  further  duty  of  said  local  committeemen  to  keep  the  executive  committee  fully 
posted  as  to  what  is  being  done  in  their  respective  districts  with  reference  to  the  sale 
and  removal  of  all  crude  oil. 

4.  There  shall  be  an  executive  committee  composed  of  members  of  the  Petroleum 
Producers'  Union,  to  consist  of  one  from  each  of  the  sixteen  districts,  to  be  chosen  by 
the  local  committee,  whose  duty  it  shall  be  to  meet  from  time  to  time,  and  take  all 
necessary  measures  to  fully  carry  out  this  plan  in  all  its  details. 

5.  That  for  the  purpose  of  paying  the  expenses  of  this  committee,  one  cent  a  barrel 
on  all  the  crude  oil  shall  be  levied,  collected,  and  paid  over  by  the  local  committee- 
men to  the  executive  committee,  of  which  the  executive  committee  shall  keep  an  account 
to  be  rendered  to  the  producers  at  a  future  meeting. 

6.  It  shall  be  the  especial  duty  of  the  executive  committee  to  take  such  measures 
as  they  may  find  necessary  to  secure  uniform  mileage  rates  of  freights  on  all  oil 
and  merchandise  of  every  kind,  to  and  from  the  Oil  Region,  and  employ  all  lawful  | 
measures  for  the  abolition  of  the  railway  system  of  rebates  or  drawbacks. 

PLEDGE 

"I  do  hereby  agree  to  sell  all  my  production  of  oil  through,  or  with  the  consent 
of,  the  committee  of  the  Petroleum  Producers'  Union." 

[292] 


APPENDIX,  NUMBER  VIII 

First. — That  an  organisation  shall  be  immediately  formed  for  the  exclusive  purpose 
of  advancing  money  to  producers  upon  their  depositing  proper  Tank  or  Pipe  Company 
receipts  therefor  with  the  organisation  or  its  agency. 

Second. — That  the  name  of  the  organisation  shall  be  the  "Producers'  Protective 
Association." 

Third. — That  its  capital  shall  be  one  million  dollars,  with  power  in  the  directors 
to  increase  it  to  such  an  amount  as  in  their  judgment  shall  be  necessary  to  accomplish 
the  objects  of  the  organisation. 

Fourth. — That  its  headquarters  shall  be  in  Oil  City,  and  its  co-operative  agencies 
shall  be  located  at  all  principal  producing  points. 

Fifth. — That  its  stock  shall  be  divided  into  shares  of  $100  each,  which  stock 
shall  be  transferable  only  upon  the  books  of  the  company  at  its  headquarters,  with 
the  consent  of  the  board  of  directors. 

Sixth. — That  the  chairman  of  the  general  committee  be  requested  to  appoint  one 
person  in  each  of  the  sixteen  producing  districts,  who  shall  open  books  to  receive, 
and  every  producer,  manufacturer,  or  other  party,  directly  or  indirectly  interested 
in  our  home  industries  be  invited  to  subscribe  to  the  capital  stock  of  this  organisation 
not  exceeding  fifty  shares,  or  such  part  thereof  as  he  shall  elect,  and  no  person  shall, 
at  any  time  hold  more  than  said  number  of  shares. 

Seventh. — That  when  the  sum  of  one  million  dollars  shall  have  been  subscribed 
and  ten  per  cent,  thereof  paid  to  five  trustees  to  be  appointed  by  the  chairman  of  the 
general  committee,  the  said  chairman  shall  give  notice  of  an  election  of  officers,  who 
shall  be  elected  by  the  votes  of  the  subscribers,  each  share  being  entitled  to  a  vote. 

Eighth. — That  said  officers  shall  consist  of  a  president,  vice-president,  and  such 
a  number  of  directors  as  shall  give  each  district  a  fair  presentation. 

Ninth. — That  the  board  of  directors  shall  appoint  some  bank  or  banker  in  each 
district  its  co-operative  agency;  or  in  the  absence  of  a  bank  or  bankers  such  agencies 
be  established  as  shall  be  most  convenient  for  the  producer,  which  bank  or  agency 
shall,  as  necessity  requires,  by  draft  or  otherwise,  obtain  its  funds  from  the  headquarters 
of  the  company,  and  be  held  strictly  accountable  therefor. 

Tenth. — That  every  producer  shall  be  entitled  to  go  to  his  most  convenient  agency, 
and  deposit  his  certificate  or  receipt  for  oil,  which  shall  be  passed  to  his  credit,  and 
he  shall  receive  such  an  advance  thereof  as  the  board  of  directors  in  their  discretion 
shall  deem  prudent  to  make. 

Eleventh. — That  the  association  shall  from  time  to  time  sell  the  oil  belonging  to  it, 
or  held  as  security  for  advances  overdue  in  such  quantities  and  at  such  prices  as  legiti- 
mate demand  will  justify  said  prices  to  be  daily  telegraphed  from  headquarters  to  the 
several  agencies. 

Twelfth. — That  every  producer  depositing  oil  in  the  hands  of  the  association  on 
which  no  advance  is  made,  may,  if  he  so  elect,  have  his  oil  held  until  such  time  as 

[  293  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

he  shall  direct  its  sale,  and  that  the  appropriation  of  oils  sold  from  day  to  day  shall 
be  as  follows:  First,  all  oils  ordered  sold  by  its  owner,  and  the  balance  pro  rata  on  I 
oils  on  which  advances  have  been  made  and  shall  then  be  overdue. 

Thirteenth. — The  association  shall  charge  a  reasonable  rate  of  interest  on  all  ad- 
vances made,  such  interest  to  be  used  in  defraying  the  expenses  of  the  association  ! 
and  the  surplus,  if  any,  shall  be  declared  as  dividends  upon  the  full  paid  stock.  That 
any  surplus  stock  remaining  in  the  hands  of  the  association  shall  be  the  property  of  j 
the  association  until  taken  and  paid  for  by  some  party  entitled  thereto  under  the 
foregoing  provisions,  but  always  at  par. 

Fourteenth. — When  the  producers  of  each  district  shall  have  appointed  their  com- 
mittees, as  provided  in  the  second  section  of  the  Producers'  Union,  and  have  elected 
their  chairman,  he  is  requested  to  send  to  the  chairman  of  the  general  committee 
the  names  thereof. 

Fifteenth. — And  it  shall  be  the  duty  of  the  person  appointed  by  the  general  com- 
mittee, as  provided  in  section  five,  to  use  due  diligence  in  the  circulation  thereof,  for 
subscriptions,  and  within  one  week  from  the  receipt  thereof,  he  shall  collect  the  ten 
per  cent,  of  each  subscription,  as  provided  by  section  seventh,  and  report  the  same 
to  the  chairman  of  the  general  committee,  together  with  a  list  of  the  subscribers  and 
the  amount  subscribed. 


[294] 


NUMBER  9    (See  page  78) 

CHARTER  OF  THE  SOUTH  IMPROVEMENT  COMPANY 

[From  The  Laws  of  Pennsylvania  for  1872.] 

An  Act  to  incorporate  the  South  Improvement  Company: 

Section  I.  Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  Common- 
wealth of  Pennsylvania  in  General  Assembly  mety  and  it  is  hereby  enacted  by  the  authority 
of  the  same.  That  S.  S.  Moon,  R.  D.  Barcley,  John  A.  Fowler,  or  a  majority  of  them, 
their  associates,  successors,  and  assigns,  be  and  they  are  hereby  authorised  and  em- 
powered to  form  and  be  a  body  corporate,  to  be  known  as  the  South  Improvement 
Company,  which  shall  be  and  is  hereby  vested  with  all  the  powers,  privileges,  duties, 
and  obligations  conferred  upon  the  act  to  incorporate  the  Pennsylvania  Company 
by  the  Act  of  the  Legislature  of  Pennsylvania,  approved  the  seventh  day  of  April, 
a.d.  one  thousand  eight  hundred  and  seventy,  and  the  supplements  thereto. 

Sec.  2.  That  the  stockholders  of  said  company,  by  and  with  the  consent  of  the 
holders  of  not  less  than  two-thirds  of  the  shares  of  stock,  be  and  they  are  hereby 
authorised  to  change  the  name  and  title  of  the  said  company  and  designate  the  location 
of  its  general  office,  which  changes  shall  be  valid  after  the  filing  of  a  certificate  in  the 
office  of  the  secretary  of  the  Commonwealth,  signed  by  the  president,  and  attested  by 
the  seal  of  the  said  company. 

Approved  the  sixth  day  of  May,  1871. 

The  Act  incorporating  the  Pennsylvania  Company,  referred  to  above,  is  the  one 
that  details  the  powers  conferred  on  the  incorporators. 

An  Act  to  incorporate  the  Pennsylvania  Company: 

Section  i.  Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  Common- 
wealth of  Pennsylvania  in  General  Assembly  mety  and  it  is  hereby  enacted  by  the  author- 
ity of  the  same,  That  Andrew  Howard,  J.  S.  Swartz,  G.  B.  Edwards,  J.  D.  Welsto, 
and  J.  P.  Malin,  their  associates,  successors,  and  assigns,  or  a  majority  of  them,  be 
and  they  are  hereby  authorised  to  form  and  be  a  body  corporate,  to  be  known  as 
the  Pennsylvania  Company,  and  by  that  name,  style,  and  title  shall  have  perpetual 
succession,  and  all  the  privileges,  franchises  and  immunities  incident  to  a  corporation; 
may  sue  and  be  sued,  implead  and  be  impleaded,  complain  and  defend  in  all  courts 
of  law  and  equity,  of  record  and  otherwise;  may  purchase,  receive,  hold,  and  enjoy, 
to  them,  their  successors,  and  assigns,  all  such  lands,  tenements,  leasehold  estates 
and  hereditaments,  goods  and  chattels,  securities  and  estates,  real,  personal  and  mixed, 
of  what  kind  and  quality  soever,  as  may  be  necessary  to  erect  depots,  engine  houses, 

[295] 


THE   HISTORY  OF  THE   STANDARD    OIL   COMPANY 

tracks,  shops,  and  other  purposes  of  the  said  corporation,  as  hereafter  defined  by 
the  second  section  of  this  act,  and  the  same  from  time  to  time  may  sell,  convey,  mort- 
gage, encumber,  charge,  pledge,  grant,  lease,  sub-lease,  alien,  and  dispose  of,  and 
also  make  and  have  a  common  seal,  and  the  same  to  alter  and  renew  at  pleasure,  and 
ordain,  establish,  and  put  in  execution  such  by-laws  or  ordinances,  rules,  and  regula- 
tions as  may  be  necessary  or  convenient  for  the  government  of  the  said  corporation,  not 
being  contrary  to  the  constitution  and  laws  of  this  commonwealth,  and  generally 
may  do  all  and  singular  the  matters  and  things  which  to  them  shall  appertain  to  do 
for  the  well-being  of  the  said  corporation,  and  the  management  and  ordering  of  the 
affairs  and  business  of  the  same: 

Provided,  That  nothing  herein  contained  shall  be  so  construed  as  to  give  to  the  said 
corporation  any  banking  privileges  or  franchises,  or  the  privilege  of  issuing  their 
obligations  as  money. 

Sec.  2.  That  the  corporation  hereby  created  shall  have  power  to  contract  with 
any  person  or  persons,  firms,  corporations  or  any  other  party,  howsoever  formed, 
existing  or  that  may  hereafter  exist,  in  any  way  that  said  parties  or  any  of  them  may 
have  authority  to  do,  to  build,  construct,  maintain  or  manage  any  work  or  works,  public 
or  private,  which  may  tend  or  be  designed  to  improve,  increase,  facilitate,  or  develop 
trade,  travel,  or  the  transportation  and  conveyance  of  freight,  live  stock,  passengers, 
and  any  other  traffic,  by  land  or  water,  from  or  to  any  part  of  the  United  States  or  the 
territories  thereof;  and  the  said  company  shall  also  have  power  and  authority  to 
supply  or  furnish  all  needful  material,  labour,  implements,  instruments,  and  fixtures 
of  any  and  every  kind  whatsoever,  on  such  terms  and  conditions  as  may  be  agreed 
upon  between  the  parties  respectively;  and  also  to  purchase,  erect,  construct,  maintain, 
or  conduct,  in  its  own  name  and  for  its  own  benefit,  or  otherwise,  any  such  work,  public 
or  private,  as  they  may  by  law  be  authorised  to  do  (including  also  herein  lines  for 
telegraphic  communication),  and  to  aid,  co-operate,  and  unite  with  any  other  company, 
person  or  firm  in  so  doing. 

Sec.  3.  The  company  hereby  created  shall  also  have  the  power  to  make  purchases 
and  sales  of  or  investments  in  the  bonds  and  securities  of  other  companies,  and  to 
make  advances  of  money  and  of  credit  to  other  companies,  and  to  aid  in  like  manner 
contractors  and  manufacturers;  and  to  receive  and  hold,  on  deposit  or  as  collateral, 
or  otherwise,  any  estate  or  property,  real  or  personal,  including  the  notes,  obligations, 
and  accounts  of  individuals  and  companies,  and  the  same  to  purchase,  collect,  adjust, 
and  settle,  and  also  to  pledge,  sell,  and  dispose  thereof,  on  such  terms  as  may  be  agreed 
on  between  them  and  the  parties  contracting  with  them;  and  also  to  indorse  and  guar- 
antee the  payment  of  the  bonds  and  the  performance  of  the  obligations  of  the  other 
corporations,  firms,  and  individuals,  and  to  assume,  become  responsible  for,  execute, 
and  carry  out  any  contracts,  leases,  or  sub-leases  made  by  any  company  to  or  with 
any  other  company  or  companies,  individuals  or  firms  whatsoever. 

[a96] 


APPENDIX,  NUMBER   IX 

Sec.  4.  The  company  hereby  created  shall  also  have  power  to  enter  upon  and 
occupy  the  lands  of  individuals  or  of  companies,  on  making  payment  therefor  or  giv- 
ing security  according  to  law,  for  the  purpose  of  erecting,  constructing,  maintaining, 
or  managing  any  public  work,  such  as  is  provided  for  or  mentioned  in  the  second 
section  of  this  act,  and  to  construct  and  erect  such  works  thereon,  and  also  such  build- 
ings, improvements,  structures,  roads,  or  fixtures  as  may  be  necessary  or  convenient 
for  the  purposes  of  the  said  company,  under  the  powers  herein  granted;  and  to  pur- 
chase, make,  use,  and  maintain  any  works  or  improvements  connecting  or  intended  to 
be  connected  with  the  works  of  the  said  company;  and  to  merge  or  consolidate,  or  unite 
with  the  said  company  the  improvements,  property,  and  franchises  of  any  other  com- 
pany or  companies,  on  such  terms  and  conditions  as  the  said  company  may  agree 
upon;  and  to  fix  and  regulate  the  tolls  or  charges  to  be  charged  or  demanded  for  any 
freight,  property,  or  passengers  travelling  or  passing  over  any  improvement  erected, 
managed,  or  owned  by  the  said  company,  or  on  any  merchandise  or  property  trans- 
ported over  any  road  whatever  by  the  said  company,  and  to  make,  from  time  to  time 
dividends  from  the  profits  made  by  said  company;  the  several  railroads  managed  by  said 
company  shall  continue  taxable,  as  heretofore,  in  proportion  to  their  length  within 
this  state  respectively;  and  the  said  Pennsylvania  Company  shall  be  taxable  only  on 
the  proportion  of  dividends  on  its  capital  stock  and  upon  net  earnings  or  income, 
only  in  proportion  to  the  amount  actually  carried  by  it  within  the  state  of  Pennsylvania, 
and  all  its  earnings  or  income  derived  from  its  business  beyond  the  limits  of  this  Com- 
monwealth shall  not  be  liable  for  taxation. 

Sec.  5.  The  capital  stock  of  said  company  shall  consist  of  2,000  shares,  of  the 
value  of  fifty  dollars  each,  being  #100,000,  and  with  the  privilege  of  increasing  the 
same  by  a  vote  of  the  holders  of  the  majority  of  the  stock  present  at  any  annual  or 
special  meeting,  to- such  an  amount  as  they  may  from  time  to  time  deem  needful; 
and  the  corporators,  or  a  majority  of  them,  named  in  the  first  section  of  this  act, 
shall  have  power  to  open  books  for  subscriptions  at  such  times  and  places  as  they 
may  deem  expedient;  and  when  not  less  than  1,000  shares  shall  have  been  sub- 
scribed, and  twenty  per  cent,  thereon  shall  have  been  paid  in,  the  shareholders  may 
elect  not  less  than  three  nor  more  than  nine  directors  to  serve  until  the  next  annual 
election,  or  until  their  successors  shall  be  duly  elected  and  qualified;  and  the  directors 
so  elected  may,  and  they  are  hereby  authorised  and  empowered  to  have  and  to  ex- 
ercise, in  the  name  and  in  behalf  of  the  company,  all  the  rights  and  privileges 
which  are  intended  to  be  hereby  given,  subject  only  to  such  liabilities  as  other 
shareholders  are  subject  to,  which  liabilities  are  no  more  than  for  the  payment  to 
the  company  of  the  sums  due  or  to  become  due  on  the  shares  held  by  them;  and 
should  the  capital  stock  at  any  time  be  increased,  the  stockholders,  at  the  time  of  such 
increase,  shall  be  entitled  to  a  pro  rata  share  of  such  increase,  upon  the  payment  of  the 
instalments  thereon  duly  called  for;  and  whenever  an  increase  of  capital  stock  is  made, 

[297] 


THE   HISTORY  OF  THE   STANDARD  OIL  COMPANY 

a  certificate  thereof,  duly  executed  under  the  corporate  seal  of  the  company,  and 
signed  by  the  president  and  secretary,  shall  be  filed  with  the  auditor-general  befort 
the  same  shall  be  deemed  to  be  valid. 

Sec.  6.  The  principal  office  of  the  said  company  shall  be  in  the  City  of  Pittsburg, 
but  the  directors,  under  such  rules  and  regulations  as  they  may  prescribe,  may  establish 
branches  or  agencies  in  other  parts  of  the  state,  or  elsewhere;  all  of  the  directors  of 
said  company  shall  be  citizens  of  the  United  States,  and  reside  therein. 

Sec.  7.  The  directors  shall  be  elected  annually  by  the  stockholders,  on  the  first 
Tuesday  of  June  of  each  year;  and  they  shall  elect  from  their  number,  at  the  first 
meeting  of  the  board  after  their  election,  a  president,  and  shall  also  have  power  to 
elect  from  their  number,  or  otherwise,  a  vice-president,  a  treasurer,  and  secretary, 
and  such  other  officers,  clerks,  and  agents  as  the  business  of  the  company  may  require; 
all  elections  for  directors  shall  be  by  ballot,  and  every  stockholder  shall  be  entitled 
to  one  vote  for  each  share  of  stock  held  by  him;  but  no  person  shall  be  eligible  as 
director  who  is  not  a  stockholder  to  the  amount  often  shares;  at  the  annual  or  special 
meetings  a  quorum  shall  consist  of  stockholders  owning  at  least  one-half  of  the  capital 
stock. 

Sec.  8.  Ten  days*  notice  shall  be  given,  by  publication,  in  two  newspapers  published 
in  the  City  of  Pittsburg,  of  the  time  and  place  of  the  annual  election;  which  election 
shall  be  conducted  by  three  stockholders,  one  of  whom  shall  act  as  judge,  and  the 
other  two  as  inspectors. 

Sec.  9.  The  board  of  directors  shall  make  all  by-laws  necessary  for  conducting 
the  business  of  the  company;  which  by-laws  shall  at  all  times  be  accessible  to  persons 
transacting  business  with  them;  the  said  directors  shall  have  power,  by  a  vote  of  a 
majority  of  their  number  at  any  meeting  of  the  board,  to  change  the  name  of  the 
said  corporation;  and  by  any  new  name,  thus  adopted,  upon  filing  with  the  secretary 
of  the  Commonwealth  and  the  auditor-general  a  truly  certified  certificate,  the  said 
company  shall  have,  hold,  and  enjoy  all  the  rights,  powers,  privileges,  and  immunities 
hereby  granted;  the  directors  shall  have  power  to  require  payment  of  the  amount 
remaining  unpaid  on  the  stock  of  said  company,  at  such  times  and  in  such  proportions 
as  they  shall  think  proper;  the  said  assessment  to  be  made  as  the  by-laws  of  said  com- 
pany shall  direct. 

Elisha  W.  Davis, 
Speaker  of  the  House  of  Representatives. 

Charles  H.  Stinson, 

Speaker  of  the  Senate. 

Approved — The  seventh  day  of  April,  Anno  Domini,  one  thousand  eight  hundred 
and  seventy. 

John  W.  Geary. 

[298] 


NUMBER  10  (See  page  80) 

DRAFT    OF    CONTRACT    BETWEEN    THE    SOUTH    IMPROVEMENT 
COMPANY  AND   PRODUCERS   OF   PETROLEUM   IN  THE 
VALLEY  OF  THE  ALLEGHENY  AND  ITS  TRIBU- 
TARIES.   DATED  JANUARY,  1872* 

[From  "A  History  of  the  Rise  and  Fall  of  the  South  Improvement  Company," 
pages  121-122.] 

Agreement  made  and  entered  into  this  day  of  January,  a.d.  1872,  by  and 
between  the  South  Improvement  Company,  a  corporation  under  the  laws  of  Penn- 
sylvania, and  embracing  among  its  stockholders  more  than  two-thirds  (reckoned  by 
their  refining  capacity)  of  the  refineries  of  petroleum  in  the  United  States,  parties 
hereto  of  the  first  part;  and  the  Associated  Producers  of  Petroleum,  a  corporation 
also  organised  under  the  laws  of  Pennsylvania,  and  embracing  among  its  stockholders 
more  than  two-thirds  (reckoned  by  the  actual  production  of  the  crude  petroleum  at 
their  wells)  of  the  producers  of  petroleum  in  the  Valley  of  the  Allegheny  and  its  tribu- 
taries, party  hereto  of  the  second  part.  Witnesseth. 

That  whereas,  The  party  of  the  first  part  has  entered  into  certain  contracts,  viz.: 
The  first  with  the  Pennsylvania  Railroad  Company;  the  second  with  the  Erie  Railway 
Company;  the  third  with  the  Atlantic  and  Great  Western  Railway  Company;  and 
the  fourth  with  the  New  York  Central  and  Hudson  River  Railroad,  and  the  Lake 
Shore  and  Michigan  Southern  Railway  Company,  which  contracts  secure  certain 
advantages  in  relation  to  the  transportation  of  petroleum  and  its  products,  which  it  is 
the  purpose  of  the  contracting  parties  to  use  for  the  promotion  of  the  common  interests 
of  the  producers,  refiners,  and  transporters  of  petroleum. 

To  the  end  that  the  said  object  may  be  more  fully  attained  the  said  parties  hereto 
have  covenanted  and  agreed,  each  with  the  other,  as  follows,  viz. : 

I.  The  party  of  the  first  part,  that  it  will  appoint  five  of  its  members  to  form,  with 
a  like  number  of  the  party  of  the  second  part,  a  joint  executive  committee,  who  shall 
choose  some  competent  and  discreet  person  not  of  their  number  who  shall  serve  as 
the  chairman  and  the  eleventh  member  of  the  joint  committee. 

*  This  draft  was  presented  to  the  committee  in  lead  pencil.      It  was  never  presented  to  the  producers. 
See  P.  H.  Watson's  testimony,  Appendix,  Number  12. 

[299] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

II.  The  party  of  the  first  part,  that  it  will  submit  all  questions,  arising  under  said 
railroad  contracts,  which  affect  the  interests  of  both  producers  and  refiners,  to  the 
decision  of  the  joint  committee  provided  for  in  Article  I  of  the  agreement. 

III.  The  party  of  the  second  part,  that  it  will  appoint  five  of  its  members  to  con- 
stitute, with  the  five  members  of  the  party  of  the  first  part,  the  joint  executive  com- 
mittee provided  for  in  Article  I  of  this  agreement;  and  will  submit  to  said  committee 
all  the  questions  mentioned  in  Article  II. 

IV.  The  said  parties  mutually,  that  the  decisions  of  said  joint  committee  on  all 
questions,  affecting  the  joint  interests  of  producers  and  refiners,  which  shall  be  sub- 
mitted to  them,  shall  be  final  and  conclusive  upon  both  the  parties  hereto.  That  upon 
the  questions  which  shall  at  all  times  be  held  to  affect  the  joint  interests  of  both  pro- 
ducers and  refiners  are  the  following,  viz.  : 

ist.    The  rates  of  transportation  of  both  crude  and  refined  oil. 
2nd.  The  price  of  crude  oil  at  the  wells  and  in  the  market. 
3rd.   The  price  of  refined  oil  in  the  market. 

4th.   The  amount  of  rebate  and  drawback  which  from  time  to  time  it  may  be 
necessary  for  the  interests  of  the  trade  to  ask  from  the  railroads. 

V.  The  said  parties  mutually,  that  the  joint  committee  shall  meet  once  a  month, 
and  at  any  intermediate  time,  or  times,  at  which  a  meeting  shall  be  called  by  the 
chairman,  or  by  any  four  of  its  members,  to  consider  such  questions  as  shall  affect 
the  joint  interests  of  the  parties  hereto. 

VI.  The  party  of  the  second  part  that  it  will  agree  to  increase  and  lessen  the  aggre- 
gate production  of  crude  petroleum,  as  the  said  joint  committee  shall  direct,  to  adapt 
as  nearly  as  practicable  the  supply  of  the  same  to  the  capacity  of  the  markets  of  the 
world  to  absorb  at  a  price  remunerative  to  the  producer,  the  refiner  and  the  trans- 
porter. 

VII.  The  parties  hereto  mutually,  that  the  said  joint  committee  shall,  at  the  begin- 
ning of  each  year,  fix  the  minimum  average  price  at  which  crude  petroleum  can  be 
produced  and  delivered  on  board  railway  cars,  which  price  shall  be  called  the  minimum 
cost  of  production — that  at  the  same  periods  the  said  committee  shall  also  fix  the 
minimum  average  price  at  which  crude  oil  can  be  refined,  put  up  in  packages  and  sold, 
which  price  shall  be  called  the  minimum  cost  of  manufacture. 

VIII.  The  parties  hereto  mutually,  that  after  paying  the  minimum  cost  of  produc- 
tion of  crude  petroleum,  the  minimum  cost  of  its  manufacture,  and  the  cost  of  trans- 
portation and  storage,  and  shipping  also,  in  the  case  of  exported  oil,  the  profits  shall 
be  apportioned  between  the  producers  and  refiners,  in  the  ratio  of  .  .  .  per  cent,  to 
the  former,  and  .  .  .  per  cent,  to  the  latter. 

IX.  The  said  parties,  that  in  case  of  a  temporary  over-production  of  crude  petroleum, 
the  excess  shall  as  far  as  practicable  be  taken  and  withheld  from  market,  and  an  advance 
of  three-fourths  of  the  minimum  cost  of  production  advanced  thereon  by  the  party  of 

[300] 


APPENDIX,  NUMBER  X 

the  first  part  at  eight  per  cent.,  intrust  the  party  of  the  second  part  keeping  the  tanked 
petroleum  insured  in  good  and  responsible  companies  to  the  full  amount  of  the  advance, 
one  year's  interest  added. 

X.  The  said  parties  mutually,  that  the  party  of  the  first  part  shall  only  be  bound 
to  pay  the  prices  and  make  the  advances  aforesaid,  in  case  the  producers  shall  in  good 
faith  obey  the  instructions  of  the  joint  committee,  to  limit  production  by  stopping 
the  drilling  of  new  wells. 

XI.  The  party  of  the  second  part  that  it  will  keep  a  register  of  the  date  of  the  com- 
mencement of  all  new  wells,  the  date  at  which  the  same  shall  be  finished,  the  character 
of  the  well  and  the  monthly  production,  and  the  date  at  which  it  may  be  abandoned, 
and  that  it  will  make  it  a  condition,  precedent  to  the  holding  of  stock  in  its  company, 
that  the  date  aforesaid  shall  be  finished  by  its  stockholders. 

XII.  Both  parties,  that  it  is  the  especial  object  of  this  agreement  to  bring  the  pro- 
ducers and  refiners  of  petroleum  into  harmony  and  co-operation,  by  reciprocal,  fair, 
and  just  dealing,  for  the  promotion  of  their  mutual  interests,  and  everything  in  this 
agreement  is  to  be  construed  liberally  for  the  carrying  into  effect  of  this  object. 


[301] 


NUMBER   ii    (Sec  page  82) 


EXTRACTS   FROM  THE  TESTIMONY  OF  W.  G.   WARDEN 

[From  "A  History  of  the  Rise  and  Fall  of  the  South  Improvement  Company," 
pages  30-41.] 

Washington,  D.  C,  March  30,  1872. 

William  G.  Warden  affirmed  and  examined. 

By  Mr.  C.  Heydrick  (Counsel). 

Q.  Are  you  an  officer  of  the  South  Improvement  Company  ? 

A.  Yes,  sir;  or  rather,  I  was. 

Q.  What  office  did  you  hold  ? 

A.  I  held  the  office  of  secretary  during  all  the  previous  meetings,  and  was  a  director 
of  the  company. 

Q.  When  was  the  company  organised  ? 

A.  Our  minutes  will  show  that,  if  you  will  allow  me  to  refer  to  them,  and  I  desire 
to  put  them  in  as  evidence.  On  referring  to  the  minutes  I  find  that  the  corporators' 
meeting  was  held  January  2,  1872.  As  I  understand  that  these  minutes  are  to  go  in 
as  a  part  of  the  evidence,  they  will  furnish  you  all  the  information  you  desire  in 
regard  to  the  organisation  and  proceedings  of  the  company. 

[The  chairman  stated  that  the  witness  could  refer  to  the  minutes  as  memoranda, 
and  that  the  committee  would  determine  hereafter  as  to  whether  they  should  be  re- 
ceived as  evidence.] 

By  Mr.  Heydrick. 

Q.  For  what  object  or  business  was  the  company  organised  ? 

A.  For  refining  oil. 

Q.  That  meeting  was  under  the  charter  which  has  been  presented  ? 

A.  That  was  the  first  meeting  held  after  we  got  the  charter. 

Q.  The  gentlemen  who  attended  that  meeting  on  the  second  of  January  were  th< 
named  in  the  act  of  the  incorporation  ? 

A.  Yes,  sir;  they  met  and  transferred  the  company  under  the  charter  over  to  t\ 
stockholders. 

Q.  Did  the  incorporators  named  in  the  act  transfer  their  interest  to  the  stockholdt 
as  you  have  stated  on  that  occasion  ? 

A.  Yes,  sir. 

[302] 


APPENDIX,  NUMBER  XI 

Q.  What  refining  capacity  does  this  company  possess  ?  State  the  amount  of  capital 
and  stock  subscribed  and  put  in  ? 

A.  At  that  time  1,100  shares,  at  £100  per  share,  was  subscribed,  and  twenty  per 
cent,  thereon  paid  into  the  treasury. 

•••••• 

Q.  Where  did  that  company  intend  to  refine  oil  ? 

A.  Their  calculation  was  to  get  all  the  refineries  in  the  country  into  the  company. 

Q.  Was  it  the  design  of  the  stockholders  to  include  all  the  oil  refineries  in  this 
country  ? 

A.  Yes,  sir;  every  one  of  them. 

•  •••••• 

Q.  Can  you  give  us  a  list  of  the  stockholders  ? 

A.  I  can  give  you  them  from  the  minutes.  They  are  as  follows: 

William  Frew 10  shares 

W.  P.  Logan 10  " 

John  P.  Logan 10  " 

Charles  Lockhart 10 

Richard    S.  Waring 10  " 

W.  G.  Warden 475  " 

O.  F.  Waring 475  " 

P.  H.  Watson 100  " 

H.  M.  Flagler .180  " 

O.  H.  Payne 180  " 

William  Rockefeller 180  " 

J.  A.  Bostwick 180  " 

John  D.  Rockefeller 180  " 

2,000 

By  Mr.  Sheldon. 

Q.  What  was  the  idea  of  getting  all  the  refineries  of  the  country  into  one  organi- 
sation ? 

A.  The  idea  when  the  company  started  was  this:  There  is  a  large  number  of 
refineries  in  the  country — a  great  deal  larger  than  is  required  for  the  manufacture 
of  the  oil  produced  in  the  country,  or  for  the  want  of  the  consumers  in  Europe  and 
America;  the  capacity  of  the  oil  refineries  in  the  country  is,  I  think,  45,000  or  50,000 
barrels  a  day;  we  completed  our  organisation,  and  when  we  met  together  it  was  dis- 
covered that  the  parties  present  represented,  in  one  way  or  another,  a  large  portion 
of  the  refining  interest  in  the  country;  of  course  all  of  us  had  our  friends  in  the  matter, 
who  must  be  taken  care  of  if  any  arrangement  at  all  was  made;  and  after  discussing 
the  matter  at  considerable  length,  it  was  decided  to  include  within  our  company  every 
refinery  we  could  possibly  get  into  it.  We  also  had  considerable  discussion  with 

[  303] 


THE  HISTORY  OF  THE  ^STANDARD  OIL  COMPANY 

the  railroads  in  regard  to  the  matter  of  rebate  on  their  charges  for  freight;  they 
did  not  want  to  give  us  a  rebate  unless  it  was  with  the  understanding  that  all  the  re- 
fineries should  be  brought  into  the  arrangement  and  placed  upon  the  same  level; 
there  was  no  difference  made  as  far  as  we  were  concerned,  in  favour  of  or  against 
any  refinery;  they  were  all  to  come  in  alike;  that  was  the  understanding  from  the  first 
to  the  last. 

Q.  Where  are  the  refineries  situated  ? 

A.  Situated  in  New  York,  Philadelphia,  Baltimore,  Boston,  on  the  sea-board, 
and  in  the  Oil  Region,  Pittsburg,  and  Cleveland. 

Q.  You  say  you  made  propositions  to  railroad  companies,  which  they  agreed  to 
accept  upon  the  condition  that  you  could  include  all  the  refineries  ? 

A.  No,  sir;  I  did  not  say  that;  I  said  that  was  the  understanding  when  we  discussed 
this  matter  with  them;  it  was  no  proposition  on  our  part;  they  discussed  it  not  in  the 
form  of  a  proposition  that  the  refineries  should  be  all  taken  in,  but  it  was  the  intention 
and  resolution  of  the  company  from  the  first  that  that  should  be  the  result;  we  never 
had  any  other  purpose  in  the  matter. 

Q.  In  case  you  could  take  the  refineries  all  in,  the  railroads  proposed  to  give  you 
a  rebate  upon  their  freight  charges  ? 

A.  No,  sir;  it  was  not  put  in  that  form;  we  were  to  put  the  refineries  all  in,  upon 
the  same  terms;  it  was  the  understanding  with  the  railroad  companies  that  we  were 
to  have  a  rebate;  there  was  no  rebate  given  in  consideration  of  our  putting  the  com- 
panies all  in,  but  we  told  them  we  would  do  it;  the  contract  with  the  railroad  com- 
panies was  with  us. 

Q.  But  if  you  did  form  a  company  composed  of  the  proprietors  of  all  these  refineries, 
you  were  to  have  a  rebate  upon  your  freight  charges  ? 

A.  No;  we  were  to  have  the  rebate  anyhow;  but  were  to  give  all  the  refineries  the 
privilege  of  coming  in. 

Q.  You  were  to  have  the  rebate  whether  they  came  in  or  not  ? 

A.  Yes,  sir. 

Q.  Were  you  to  have  a  rebate  upon  the  same  freight  charges  that  had  been  in  ex- 
istence before  ? 

A.  No;  the  whole  object  of  the  railroad  authorities  was  to  get  better  freight  prices. 

Q.  What  effect  was  this  arrangement  to  have  upon  the  producer  or  upon  the  re- 
fineries that  did  not  go  into  your  combination  ? 

A.  According  to  our  opinion  of  it  that  is  the  way  we  have  got  into  this  trouble; 
we  have  been  misconstrued  and  misrepresented  as  to  our  purposes  all  over  the  country; 
the  whole  object  was,  and  our  whole  talk  was,  as  far  as  any  of  my  friends  came  into 
the  matter,  or  as  far  as  I  myself  was  concerned,  that  the  producers  should  receive  a 
better  price  for  their  oil;  we  calculated  to  get  five  or  six  dollars  a  barrel  for  crude  oil; 

[304] 


APPENDIX,  NUMBER  XI 

that  was  from  the  beginning  of  our  talk  until  the  end  of  it;  we  had  not  our  company 
organised,  or  at  least  the  organisation  was  not  completed,  nor  the  contract  signed, 
until  all  these  disturbances  commenced  to  be  gotten  up;  we  thought  the  matter  would 
quiet  down  and  we  would  get  a  chance  to  explain  our  position  and  put  ourselves  right; 
we  asked  for  the  opportunity  to  do  so;  we  have  evidence  of  that  in  the  telegrams  we 
sent,  and  I  can  say,  under  oath,  that  they  were  sent  in  good  faith;  there  was  never  an 
idea  in  my  mind  that  they  were  not.  ...  I  will  state  further  that  this  matter  was  dis- 
cussed with  Mr.  Scott  by  myself,  personally,  and  in  very  great  length,  and  also  with  Mr. 
Potts,  who  never  has  had  any  interest  and  never  any  part  in  this  contract,  and  who 
spoke  of  this  very  matter  from  the  start,  expressing  the  opinion  that  it  could  not  succeed 
unless  the  producers  were  taken  care  of.  That  was  understood  by  us  all  from  the  start 
in  every  discussion  we  had,  and  by  the  railroad  people  as  far  as  I  heard  from  them. 
I  can  only  answer  for  the  railroad  people  from  the  conversation  I  had  personally 
with  Mr.  Scott  and  Mr.  Potts,  in  which  it  was  perfectly  understood  that  we  could 
not  succeed  in  carrying  out  these  measures  for  our  own  benefit  and  the  benefit  of  the 
railroads  without  the  co-operation  of  the  producers,  and  the  only  point  we  discussed 
was  whether  it  should  be  a  combination  or  co-operation.  I  took  the  ground  personally 
against  forming  a  combination  inasmuch  as  the  interests  of  the  producers  were  in 
one  sense  antagonistic  to  ours,  one  as  the  seller  and  the  other  as  the  buyer.  We  held 
in  argument  that  the  producers  were  abundantly  able  to  take  care  of  their  own  branch 
of  the  business  if  they  took  care  of  the  quantity  produced.  They  were  only  liable  to 
depression  from  our  production,  therefore  they  had  in  their  own  hands  directly  the 
power  of  holding  the  market  at  six  or  eight  dollars  a  barrel. 

Q.  You  did  not  take  into  consideration  the  good  of  the  consumers  of  the  country, 
which  is  by  far  the  larger  part  of  the  population  of  the  country  ? 

A.  Yes,  we  did. 

Q.  You  wanted  to  put  up  the  price  of  oil  ? 

A.  In  answer  to  that  I  will  state  that  the  producers  and  refiners  were  both  suffering 
under  the  depression  that  existed.  The  refiners  were  not  getting  enough  to  pay  their 
expenses.  All  we  asked  was  a  fair  refiner's  profit. 

Q.  What  effect  were  these  arrangements  to  have  upon  those  who  did  not  come 
into  the  combination  or  co-operation,  as  you  have  termed  it,  as  to  the  price  to  be 
charged  for  transporting  their  oil,  both  refiners  and  producers  ? 

A .  I  do  not  think  we  ever  took  that  question  up. 

Q.  Were  the  railroad  companies  to  charge  the  same  increase  of  freights  to  those 
who  did  not  come  into  the  combination  that  they  did  to  you  without  giving  them  a 
rebate  ? 

A.  Yes,  sir. 

Q.  Now  in  case  you  could  control  the  oil  produced  by  these  people  in  any  com- 
bination that  you  made,  were  you  not  to  have  a  rebate  upon  the  oil  ? 

[  305  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

A.  We  were  not  to  have  a  rebate,  we  were  to  have  a  drawback. 

Q.  What  is  the  difference  between  a  rebate  and  a  drawback  ? 

A.  There  is  not  much  difference  in  one  sense.  A  rebate  is  made  at  the  time  we 
pay  our  freight;  a  drawback  is  made  afterward. 

Q.  That  is  a  technical,  rather  than  a  real,  difference,  is  it  not  ? 

A.  I  want  to  state  it  as  you  will  find  it  in  the  contract. 

Q.  The  effect  was  that  those  who  did  not  go  into  the  combination  could  not  get 
their  oil  as  cheaply  as  you  could  ? 

A.  No,  sir;  they  could  not;  I  want  to  explain  in  what  relation  that  occurred  and 
why  this  arrangement  was  made.  I  may  say  that  it  never  entered  into  my  head  that 
the  refineries  would  not  all  be  brought  in;  a  fair  manufacturer's  profit  was  all  we 
wanted.  They  were  all  to  be  brought  in  on  equal  terms,  and  the  object  of  the  drawback 
was  not  to  cover  all  the  oil  to  be  refined  in  this  country,  but  only  the  oil  that  was  to 
be  exported. 

Q.  If  all  had  gone  into  the  combination,  then  the  result  would  not  have  been  to 
injure  the  producers  and  refiners,  but  to  injure  the  consumers  of  the  country  ? 

A .  No,  sir;  the  purpose  was  not  to  injure  them. 

Q.  Would  it  not  have  been  to  increase  the  price  of  oil,  if  you  had  increased  the 
cost  of  freight  ? 

A.  Yes,  sir. 

Q.  You  say  the  railroad  companies  were  going  to  increase  the  rate  of  freight  any- 
how; they  had  the  right  to  do  that  if  they  were  carrying  too  low,  but  would  that  justify 
them  in  increasing  the  rates  of  freight  to  such  an  extent  that  they  could  afford  to  give 
you  a  sum  of  money  for  it  ? 

A.  I  will  tell  you  how  that  was  done.  The  men  in  our  trade  are  a  very  hard  kind 
of  men  to  hold.  Those  of  us  who  deal  in  oil  know  that  when  we  have  purchased  a 
lot,  they  would  deliver  it  in  New  York  for  less  than  anybody  could  afford  to  deliver 
it.  That  has  been  the  fact  almost  continuously  ever  since  1869.  Oil  has  been  delivered 
in  the  East  for  less  money  than  was  apparent  from  any  rates  known  to  the  market ; 
less  than  even  we  who  refined  it  could  deliver  it  for.  The  railroads  were  kept  con- 
stantly besieged  by  one  or  another,  and  they  were  continually  cutting  under  other 
routes  for  New  York  or  for  Cleveland,  so  that  nobody  knew  what  the  rates  were.  They 
have  been  paying  rebates,  more  or  less,  for  the  last  two  years. 

Q.  And  you  contemplated  an  increase  of  rates  for  the  simple  purpose  of  having 
the  railroads  divide  with  you  ? 

A.  There  was  no  divide. 

Q.  A  rebate  is  a  divide  to  a  certain  extent,  is  it  not?  The  proposition  was  that 
there  should  be  taken  out  of  the  producers  and  consumers  of  this  country  a  certain 
percentage  of  the  freight  for  you  ? 

[306] 


APPENDIX,  NUMBER  XI 

A.  It  was  done  to  prevent  this  cutting  of  roads  one  under  another,  and  to  prevent 
speculation. 

Q.  Was  it  not  done  for  the  purpose  of  oppressing  the  producers  and  consumers  of 
this  country  ? 

A .  I  can  only  deny  that  such  was  the  object,  or  that  such  would  have  been  the 
effect. 

Q.  Has  it  been  the  practice  of  both  the  producer  and  refiner  to  make  combinations 
from  time  to  time  by  storing  oils,  and  by  large  shipments  abroad  to  affect  the  general 
price  in  the  market  ? 

A.  The  producers  have  made  such  combinations  on  the  creek,  and  a  few  of  the 
refiners  and  merchants  made  two  combinations  in  1868,  which  was  known  as  the 
Deboe  combination,  and  in  1869  and  1870  the  Bull  Ring,  as  they  called  it;  but  there 
was  no  combination  that  I  knew  of  on  the  part  of  the  producers,  except  among  them- 
selves; they  have  several  times  combined  among  themselves. 

Q.  Have  there  not  been  combinations  of  producers,  refiners,  and  merchants  to 
affect  the  price  of  oil  ? 

A.  There  have  been  all  kinds  of  combinations. 

Q.  Is  there  not  at  this  time,  if  not  invalidated  by  a  change  of  directors  of  the  Erie 
Railroad  Company,  a  combination  between  officers  of  that  road  and  certain  parties 
in  New  York  by  which  they  control  the  price  of  coal  ? 

A.  If  I  were  allowed  to  say  what  I  think,  I  should  reply  in  the  affirmative  and  to 
say  that  one  great  reason  why  we  went  into  this  arrangement  was  to  stop  that  Erie 
combination,  which  was  a  great  source  of  difficulty;  we  could  not  get  hold  of  the  matter; 
we  would  ship  a  cargo  of  oil  at  a  fair  price  to-day,  and  would  be  compelled  to  sell  it 
to-morrow  at  a  much  less  price;  this  arrangement  did  break  up  that  combination 
entirely,  so  that  there  is  no  combination  of  that  sort  to-day. 

By  the  Chairman. 

Q.  I  understand  that  your  larger  combinations  swallowed  up  the  Erie  combination. 

A .  It  destroyed  it  at  the  time. 

Q.  Yours  was  somewhat  in  the  direction  of  the  Erie  combination,  but  larger  ? 

A.  No,  sir;  it  was  not;  the  Erie  was  with  some  merchants,  ours  embraces  the  whole 
refining  interest  in  the  country;  that  was  different;  I  will  state  that  since  I  came  into 
this  Capitol  I  have  been  told  that  the  very  men  engaged  in  prosecuting  this  investiga- 
tion have  a  combination  by  which  they  intend  to  run  up  the  price  of  their  oil;  I  hope 
they  will;  I  do  not  care  what  means  are  used,  so  that  we  can  carry  on  our  business, 
and  pay  just  what  others  have  to  pay. 

Q.  I  understand  you  to  say  that  under  your  arrangement  the  cost  of  crude  oil  might 
be  increased  $  1.25  a  barrel,  and  that  there  is  produced  about  18,000  barrels  daily 

[307] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

in  the  Oil  Regions  of  Pennsylvania,  but  not  that  on  an  average;  can  you  state  from 
memory  about  the  amount  of  annual  production  ? 

A .  I  have  a  circular  here  which  gives  the  statement  as  5,775,000  barrels. 

Q.  So  that  the  production  in  round  numbers  for  last  year  was  6,000,000  barrels; 
now,  of  this  #1.25,  how  much  were  you  to  get  as  your  drawback  if  you  had  carried 
out  your  arrangement  ? 

A.  The  maximum  we  would  have  been  entitled  to  receive  is  one  dollar  a  barrel. 

Q.  Then  on  this  production  you  would  have  received  $6,000,000  a  year,  and  the  rail- 
road companies  an  additional  sum  of  $1,500,000;  in  other  words,  under  your  arrange- 
ment the  public  would  have  been  put  to  an  additional  expense  of  $7,500,000  a  year. 

A .  What  public  do  you  refer  to  ?  They  would  have  had  to  pay  it  in  Europe. 

By  Mr.  Negley. 

Q.  Were  there  not  at  the  same  time  combinations  upon  the  part  of  producers  to 
affect  the  price  of  oil  in  the  market  ? 

A .  There  were  not  at  the  time  we  started  this  matter;  I  do  not  know  of  any  just  at 
that  moment;  there  have  been  over  and  over  again.  I  want  to  state  that  a  large  portion 
of  our  oil  product  goes  to  Europe — of  this  very  crude  oil  which  Mr.  Sheldon  talks 
about;  I  have  here  a  circular  to  which  I  call  the  attention  of  the  committee,  which 
bears  out  our  position  in  this  matter;  I  desire  to  put  it  in  evidence  because  it  gives 
the  general  opinion  of  merchants  connected  with  the  exportation  of  crude  oil.  It  has 
been  the  impression  of  everybody  in  the  trade  that  the  oil  exported  should  pay  us 
an  additional  amount  in  this  country,  to  be  divided  between  those  interested  in  the 
handling  of  it  and  the  producing  of  it,  to  the  extent  of  eight  or  ten  millions  a  year; 
I  have  had  that  figured  out  three,  or  four,  or  five  successive  years.  We  have  shown 
over  and  over  again  that  that  amount  ought  to  be  retained  in  this  country.  I  have  been 
engaged  for  several  years  in  the  oil  business,  and  I  have  yet  to  sell  one  barrel  to  bear 
the  market.  I  have  always  been  upon  the  bull  side  of  the  market;  I  believe  there 
ought  to  be  in  this  country  a  better  price  for  oil  to  every  one  engaged  in  it.  In  1868, 
1869,  and  1870,  there  were  movements  in  oil  which  brought  to  this  country  millions 
of  dollars;  and  if  the  producers  had  refrained  from  sending  forward  their  oil  beyond 
the  requirements  of  the  market,  the  price  ^ould  have  been  sustained.  That  has  been 
the  trouble  always  in  making  movements  for  a  higher  price.  There  is  no  man  in  this 
country  who  would  not  quietly  and  calmly  say  that  we  ought  to  have  a  better  price 
for  these  goods. 

By  the  Chairman. 

Q.  Do  you  mean  a  better  price  here,  or  a  better  price  for  that  exported  ? 

A .  You  could  not  get  a  better  price  for  that  exported  without  having  a  better  price 
here. 

Q.  That  is  what  the  committee  wants  to  know,  whether  it  is  necessary,  in  order 
to  keep  up  the  price  abroad,  to  keep  up  the  price  at  home  ? 

[308] 


NUMBER   12   (See  page  82) 


EXTRACTS    FROM  THE  TESTIMONY  OF   PETER   H.   WATSON 

[From  "A  History  of  the  Rise  and  Fall  of  the  South  Improvement  Company," 
pages  76-96.] 

Washington,  D.  C,  April  5,  1872. 

By  Mr.  Townsend. 

Q.  From  such  testimony  as  you  have  given  this  morning,  am  I  correct  in  under- 
standing that  this  whole  arrangement  was  suspended  before  its  completion  and  before 
anything  was  done  under  it  ? 

A.  Yes,  sir. 

Q.  That  no  completion  of  contracts  was  consummated  ? 

A .  No,  sir;  the  conditions  of  the  original  understanding  about  the  contracts,  on 
which  alone  they  were  to  go  into  effect,  had  not  been  complied  with. 

Q.  And  a  further  arrangement  was  necessary  to  make  it  a  complete  contract  ? 

A.  Yes,  sir,  the  South  Improvement  Company  had  to  enter  into  a  contract,  such 
substantially  as  I  have  furnished  a  draft  of  here,  to  give  the  producers  the  full  benefit 
of  everything  connected  with  the  contract  before  the  contract  itself  could  go  into  effect. 

Q.  There  are  three  principal  interests  connected  with  the  oil  trade  ? 

A.  There  are,  the  producers,  refiners  and  transporters;  no  injustice  could  be  done 
to  either  interest  without  affecting,  injuriously,  the  others.  The  object  of  the  railroads 
in  this  matter  was  to  promote  the  interests  of  the  trade  in  order  to  promote  their  own 
interests. 

By  the  Chairman. 

Q.  You  say  there  were  three  interests,  producers,  refiners  and  shippers  ? 

A.  Yes,  sir,  connected  with  the  trade. 

Q.  And  that  the  object  of  all  these  arrangements  was  to  protect  these  three  interests  ? 

A.  To  protect  these  three  interests  and  incidentally,  of  course,  protecting  the  general 
interest  in  doing  that,  for  this  is  peculiarly  an  American  traffic. 

Q.  It  was  in  the  direction  of  increasing  to  each  of  these  parties,  respectively  the 
benefits  and  profits  of  the  business  ? 

A.  Yes,  sir,  that  each  might  receive  a  fair  profit.  The  railroad  companies  had  not 
been  receiving  cost  for  transportation,  and  it  was  to  save  them  from  loss,  for  they 
had  been  transporting  at  a  loss  during  the  whole  of  the  year  1871. 

[309] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Q.  Well,  that  is  to  increase  profits,  is  it  not  ? 

A.  Yes,  to  save  from  loss. 

Q.  Did  it  look  to  increasing  in  any  way  the  benefits  of  cheapness  to  the  consumer  ? 

A.  Yes,  sir. 

0.  How? 

A.  By  steadying  the  trade.  You  will  notice  what  all  those  familiar  with  this  trade 
know,  that  there  are  very  rapid  and  excessive  fluctuations  in  the  oil  market;  that  when 
these  fluctuations  take  place  the  retail  dealers  are  always  quick  to  note  a  rise  in  price, 
but  very  slow  to  note  a  fall.  Even  if  two  dollars  a  barrel  had  been  added  to  the  price 
of  oil,  under  a  steady  trade,  I  think  the  price  of  the  retail  purchaser  would  not  have 
been  increased.  That  increased  price  would  only  amount  to  one  cent  a  quart,  and  I 
think  the  price  would  not  have  been  increased  to  the  retail  dealer  because  the  fluctua- 
tion would  have  been  avoided.  That  was  one  object  to  be  accomplished.  Moreover, 
there  is  only  one-sixth  of  the  oil  produced  here  consumed  in  this  country — a  very 
small  proportion  of  the  product.  In  discussing  what  compensating  advantage  would 
arise  from  an  increase  of  price,  the  railroad  companies  considered,  in  the  first  place, 
that  there  was  a  very  great  compensation  afforded  by  a  steady  trade. 

Q.  Will  you  state  to  the  committee  how,  with  your  mode  of  arriving  at  these  con- 
clusions, that  cheapness  to  the  consumer  is  promoted  by  stability  in  trade — how  that 
arrangement  which  gave  $1.50  a  barrel  to  the  South  Improvement  Company  benefited 
either  the  railroad  company  or  the  producer  ? 

A.  Well,  sir,  in  the  agreement  you  will  observe  that  the  maximum  rebates  and 
maximum  rates  are  stated.  These  maximum  rebates  were  exceptions  to  the  rule,  which 
is  a  cardinal  principle  in  the  contract.  The  actual  rates  were  to  be  kept  as  near  to 
net  rates  as  possible.  Moreover,  this  was  a  contract  which,  before  it  was  to  go  into 
effect,  would  have  been  a  contract  with  the  producer  as  well  as  the  refiner. 

Q.  Does  this  contract  show  that  ? 

A.  The  draft  of  a  contract  which  I  have  presented  to  the  committee,  and  which 
was  to  have  been  entered  into  with  the  producers  before  the  contracts  with  the  railroad 
companies  went  into  operation,  shows  that. 

Q.  Does  this  contract  say  that  anything  was  to  be  done  in  behalf  of  the  producer 
before  it  was  to  go  into  operation  ? 

A.  Not  on  the  face  of  the  contract;  it  was  only  a  condition  on  which  it  was  delivered 
to  me. 

Q.  A  written  condition  so  that  it  would  become  a  part  of  the  contract  ? 

A.  It  was  a  part  of  the  contract. 

Q.  I  asked  you  whether  there  was  anything  in  writing  ? 

A.  I  said  there  was  nothing  in  writing  on  the  face  of  the  contract,  but  nevertheless 
it  was  an  essential  part  of  it. 

Q.  It  seems  to  be  essential  now  that  it  should  be  a  part  of  the  contract  ? 

[3IO] 


APPENDIX,  NUMBER  XII 

A.  It  was  all  the  time  so  considered  from  the  beginning. 

By  Mr.  Hambleton. 

Q.  Was  this  draft  of  a  contract  with  the  producers  drawn  prior  to  the  execution  of 
the  railroad  contracts  ? 

A.  Yes,  sir,  the  draft  was  drawn  prior  to  that. 

By  the  Chairman. 

Q.  What  is  the  date  of  that  pencilled  draft  of  a  contract  ? 

A.  I  could  not  give  you  the  date  of  it ;  it  was  written  in  the  office  of  the  Lake  Shore 
Railroad  Company. 

Q.  At  what  place? 

A.  New  York. 

Q.  State  as  near  as  you  can  the  date  ? 

A.  I  should  say  it  was  probably  in  December;  either  late  in  December  or  in  the 
beginning  of  January,  probably  in  December;  indeed,  I  am  very  confident  it  was  before 
I  went  home  at  Christmas. 

Q.  Has  any  copy  of  this  ever  been  printed  ? 

A.  No,  sir. 

Q.  This  is  all  there  was  of  it  ? 

A.  Yes,  except  discussion;  we  discussed  the  matter. 

Q.  I  mean  all  there  was  committed  to  writing  ? 

A.  Yes,  sir,  all  there  was  then  committed  to  writing. 

Q.  Is  it  all  there  was  as  far  as  making  out  a  contract  is  concerned  ? 

A.  Yes,  sir. 

Q.  Was  this  submitted  to  the  producers  as  a  body  or  individually  ? 

A.  We  were  very  anxious  to  submit  it  to  the  producers,  and  I  asked  them  to  appoint 
a  committee  that  we  might  do  it,  but  they  had  got  up  such  an  excitement  at  the  time 
that  nothing  was  practicable. 

Q.  When  was  that  ? 

A.  Before  the  last  of  these  contracts  was  signed. 

Q.  Can  you  give  the  dates  at  all  ? 

A.  I  cannot  give  the  dates,  but  the  contract  with  the  Lake  Shore  road  had  not  been 
signed  at  the  time. 

Q.  What  producers  did  you  ask  to  call  a  meeting  ? 

A.  Among  others  I  addressed  a  communication  to  be  delivered  to  a  gentleman  who 
was  understood  to  be  the  chairman  of  a  meeting  about  to  be  held. 

Q.  What  was  his  name  ? 

A.  Foster  W.  Mitchell,  of  Franklin. 

Q.  You  addressed  a  communication  to  him,  of  what  purport  ? 

A.  Asking  him  to  appoint  a  committee  to  meet  a  committee  of  the  South  Improve- 
ment Company,  that  they  might  know  what  the  objects  of  the  South  Improvement 

[311] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Company  were.  I  proposed  to  submit  these  contracts  with  the  railroad  companies 
to  that  committee  and  also  the  form  of  contract  which  the  railroad  companies  re- 
quired the  South  Improvement  Company  to  enter  into  with  the  producers,  before 
these  contracts  went  into  effect. 

Q.  Have  you  a  copy  of  that  communication  or  letter  ? 

A.  It  was  a  telegram. 

Q.  Have  you  a  copy  of  it  here  ? 

A.  I  have  not  at  present. 

Q.  Have  you  it  in  your  possession,  anywhere,  and  can  you  lay  it  before  the  committee  ? 

A.  I  may  have  it;  am  not  sure. 

Q.  Did  you  receive  a  reply  to  that  communication  ? 

A.  Yes,  sir. 

Q.  Was  it  stated  in  your  communication  that  you  proposed  to  lay  before  the  com- 
mittee the  form  of  contract  to  be  entered  into  with  the  producers  ? 

A .  No,  sir.  I  proposed  to  lay  that  before  the  committee  if  it  should  be  appointed. 

Q.  If  you  are  not  able  to  furnish  a  copy  of  that  communication  I  will  ask  you  to 
state  orally  its  contents. 

A.  I  could  not  give  you  the  words  of  it;  it  was  in  general  terms  asking  that  they 
appoint  a  committee  to  confer  with  a  committee  of  the  South  Improvement  Company. 

Q.  To  confer  in  reference  to  what  ? 

A .  I  do  not  know  that  I  should  be  safe  in  undertaking  to  say;  I  know  what  my 
object  was  in  writing  it. 

Q.  That  you  have  stated.  If  you  received  a  reply  from  Mr.  Mitchell,  state  whether 
it  was  by  letter  or  telegram. 

A .  I  received  a  reply  by  telegraph  from  Mr.  Mitchell,  stating  that  the  meeting  of 
the  producers  received  the  communication  with  scorn — as  of  course  they  would  if 
read  to  them,  as  a  mass-meeting  is  always  called  for  a  specific  object. 

Q.  That  was  not  in  his  reply  ? 

A.  No,  sir,  it  was  not.  I  replied  to  him  that  I  had  intended  the  communication 
to  him  to  be  for  the  purpose  of  laying  it  before  a  few  of  the  principal  producers;  that 
to  lay  the  proposition  before  the  meeting  was  of  course  to  insure  its  defeat,  because 
the  meeting  had  convened  for  a  predetermined  purpose,  which  was  to  denounce  and 
treat  with  scorn  the  South  Improvement  Company,  because  the  South  Improvement 
Company  had  been  represented  to  them  as  hostile  to  their  interests.  This  last  perhaps 
was  not  in  the  communication. 

By  Mr.  Hambleton. 

Q.  Have  you  a  copy  of  that  paper  which  you  addressed  to  Mr.  Mitchell  ? 

A.  I  am  not  sure  whether  I  have  or  not.  It  was  a  telegram. 

Q.  Did  that  substantially  close  the  written  communications  between  you  and  the 
producers  upon  that  subject  ? 

[312] 


APPENDIX,  NUMBER  XII 

A.  No,  sir.  I  had  a  great  many  communications  with  individual  producers;  I 
think  with  more  than  half  the  producers,  estimating  them  by  the  quality  of  oil  produced. 

Q.  State  what  occurred. 

A .  I  have  corresponded  with  them  and  in  that  correspondence  they  have  expressed 
their  belief  that  the  proposed  plan  of  the  South  Improvement  Company  would  work 
greatly  for  the  benefit  of  the  producing  interest;  that  there  was  something  greatly  needed 
for  the  producing  interest,  and  that  it  could  not  thrive  without  something  of  this  kind, 
because  it  could  not  pay  fair,  living  rates,  for  transportation  to  the  railroad  companies 
at  the  price  oil  was  bringing,  and  that  there  was  no  likelihood  of  oil  increasing  in 
price  under  the  existing  condition  of  things;  that  the  railroad  could  not  always,  of 
course,  continue  carrying  at  a  loss. 

Q.  Will  you  give  the  names  of  the  producers  who  proposed  to  join  the  South  Im- 
provement Company,  or  who  expressed  themselves  favourable  to  the  plan  of  that 
company,  in  addition  to  the  name  of  Mr.  Mitchell  ? 

A .  I  could  give  you  the  names  of  several  of  them,  but  I  do  not  think  their  lives 
and  property  would  be  safe.  They  requested  me  not  to  mention  their  names  because 
they  thought  it  would  be  an  imprudent  thing  to  do. 

Q.  You  refuse,  then,  to  give  the  names  which  you  say  you  could  state  ? 

A .  I  refuse  to  give  the  names  for  the  reason  I  have  stated. 

Q.  Are  there  any  of  them  you  are  willing  to  mention  ? 

A .  I  will  look  over  the  letters  and  see  whether  there  are  any  of  them  not  marked 
confidential.  If  there  are  any  not  so  marked,  I  will  give  you  the  names. 

Q.  Why  do  you  state  to  this  committee  that  you  are  not  willing  to  give  the  names 
of  the  parties  to  whom  you  refer,  when  you  state  that  a  great  many  producers  were 
in  favour  of  this  plan,  and  were  consulted  in  regard  to  it  ? 

A .  I  stated  it  because  it  was  a  fact. 

By  Mr.  Sheldon. 

Q.  Did  the  danger  to  the  lives  of  these  parties  arise  from  the  excitement  in  the 
Oil  Regions  in  consequence  of  these  proceedings  ? 

A.  Yes,  sir,  one  of  the  presidents  of  one  of  the  committees  representing  the  pro- 
ducers was  in  New  York,  a  Mr.  Patterson.  He  stated,  as  I  understood,  to  one  of 
the  railroad  officers,  that  he  did  not  think  my  life  would  be  safe  if  I  were  to  go  into 
the  Oil  Region,  although  he  himself  would  not  take  it.  I  had  received  a  number  of 
threatening  letters,  but  I  did  not  attach  any  importance  to  them  until  Mr.  Patterson 
made  that  statement. 

By  the  Chairman. 

Q.  What  was  the  reason  given  why  your  life  would  not  be  safe  ? 

A.  I  do  not  know  that  the  reason  given,  I  think  by  Mr.  Patterson,  that  there  was 
such  an  unreasonable  excitement  among  the  people  as  to  the  nature  and  object  of  the 

[313] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

South  Improvement  Company,  which  was  represented  to  them  to  be  a  measure 
altogether  hostile  to  them. 

Q.  Do  you  know  what  these  misrepresentations  were  ? 

A.  I  only  know  by  what  I  have  seen  stated  in  the  papers  and  what  persons  have 
mentioned  to  me. 

Q.  Did  you  make  an  effort  to  correct  the  false  impressions  ? 

A.  I  did;  the  papers  called  for  the  other  day  by  the  committee,  and  which  I  have 
here  to-day  to  produce,  will  show  that. 

Q.  Were  your  efforts  to  correct  these  misrepresentations  successful  ? 

A.  No,  sir,  they  were  not.  I  will  read  the  despatches  which  I  sent  for  the  purpose  of 
endeavouring  to  do  that,  and  you  will  see  from  them  the  nature  of  the  efforts  I  made. 

Q.  Sent  to  whom  ? 

A.  I  sent  a  despatch  to  F.  W.  Mitchell  through  S.  P.  McCalmont  of  Franklin, 
which  I  have  here. 

The  Chairman. — We  will  not  stop  to  read  them. 

Witness. — It  will  answer  your  question  in  a  great  deal  shorter  period  than  I  could 
answer  it  verbally. 

The  Chairman. — We  will  put  the  answers  themselves  in  as  testimony. 

Witness. — Then  I  will  read  this  as  my  answer,  if  you  please,  because  it  expresses 
as  fully  as  I  could  express  the  facts  you  desire  to  know. 

The  Chairman. — Very  well,  you  may  hand  the  despatches  to  the  reporter,  and 
they  will  go  in  as  a  part  of  your  testimony,  and  save  the  committee  the  time  of  reading 
them. 

Witness. — You  can  hardly  comprehend  the  answer  without  hearing  the  despatches. 
There  were  three  despatches,  showing  the  efforts  I  made  to  have  the  producers  under- 
stand that  the  whole  arrangement  was  one  which  looked  as  much  to  their  interest 
as  to  any  other. 

The  Chairman. — Very  well,  you  may  furnish  them  to  the  committee;  we  will  not 
stop  to  read  them  now. 

Witness. — I  then  offer  you  first  my  despatch  to  S.  P.  McCalmont,  dated  New  York, 
March  4,  1872.  I  next  offer  another  despatch  from  myself  to  F.  W.  Mitchell,  dated 
New  York,  March  5,  1872,  and  also  a  despatch  from  myself  to  the  same  party,  dated 
New  York,  March  6,  1872. 

The  despatches  referred  to  are  as  follows: 

S.  P.  McCalmont,  New  York,  March  4,  1872. 

Franklin,  Pennsylvania. 
Your  telegram  received.  Please  deliver  the  following  communication  to  F.  W. 
Mitchell,  or,  in  his  absence,  to  somebody  else  who  will  make  its  contents  known  to 
the  principal  producers  attending  the  meeting  to  be  held  to-morrow  at  Franklin: 

[314] 


APPENDIX,  NUMBER  XII 

To  F.  W.  Mitchell: 

Yesterday  I  received  by  mail  from  you  or  some  other  friend  in  Franklin  several 
newspaper  slips,  one  of  which  threatened  the  destruction  of  my  oil  at  Franklin.  At 
the  same  time  I  received  an  anonymous  letter  threatening  injury  to  the  Jamestown 
and  Franklin  Railroad.  Disapproval  of  my  connection  with  the  South  Improvement 
Company  is  alleged  as  the  reason  of  both  threats.  This  morning  the  telegraph  informs 
me  that  the  threat  to  destroy  my  oil  has  been  executed  by  tapping  the  tank  and  letting 
it  run  to  waste.  While  there  may  be  some  excuse  for  working  up  the  present  excite- 
ment to  induce  people  to  subscribe  their  money  to  new  railroad  schemes,  there  can 
be  nothing  but  reprobation  for  the  lawless  destruction  of  property.  You  have  sufficient 
character  and  influence,  and  sufficient  information  of  the  purposes  of  the  company, 
to  quell  this  excitement  by  a  word,  and  I  think  it  your  duty  to  say  that  word.  It  seems 
to  me  that  a  great  responsibility  rests  with  somebody  among  you  for  stimulating  the 
present  causeless  excitement,  and  the  lawless  destruction  of  property.  On  meeting 
you  here  on  your  return  from  the  South,  I  explained  to  you,  very  briefly,  that  the 
whole  plan  of  the  South  Improvement  Company  was  founded  upon  the  expectation 
of  co-operation  with  the  oil  producers  to  maintain  a  good  price  for  crude  oil,  as  the 
only  means  of  securing  a  fair  remuneration  to  either  the  transporter,  the  refiner,  or  the 
merchant. 

Unless  the  producers  will  co-operate  with  us,  first,  by  limiting  the  production  or 
the  capacity  of  the  markets  of  the  world  to  absorb  petroleum  at  a  good  price;  and, 
secondly,  by  tanking  a  large  part  of  the  production  for  the  next  two  or  three  months, 
that  it  may  be  withheld  from  the  market  until  the  present  glut  is  exhausted  and  pro- 
duction reduced,  it  will  be  impossible,  I  am  convinced  from  recent  advices  of  the 
state  of  supply  and  demand  in  the  principal  markets  of  the  world,  to  keep  the  price 
of  crude  oil  up  to  $3.50,  and  of  refined  oil  up  to  twenty-two  cents,  during  the  coming 
summer. 

I  stated  to  you  in  the  strongest  terms  the  desire  of  the  South  Improvement  Company 
to  enter  into  an  arrangement  for  a  series  of  years  with  the  producers,  whereby  good 
prices  for  crude  oil  at  the  wells  and  fair  and  reasonable  rates  of  transportation  would 
at  all  times  be  assured.  The  desire  still  exists.  You  expressed  to  me  your  concurrence 
in  these  views,  as  others  among  the  leading  producers  whom  I  have  more  recently 
seen  have  also  done. 

I  then  explained  to  you  certain  important  business  which  I  had  postponed  to  await 
the  organisation  of  the  South  Improvement  Company.  That  business  I  have  been 
engaged  upon  for  the  last  ten  days.  As  soon  as  I  get  through  with  it,  which  I  hope 
will  be  in  a  few  days,  I  should  like  to  meet  a  committee  of  the  principal  producers  to 
arrange  the  details  of  the  plan  of  co-operation  of  which  we  spoke.  I  therefore  request 
you  to  have  such  a  committee  appointed  by  the  meeting  noticed  for  to-morrow  on 
the  newspaper  slip  sent  to  me,  and  if  possible  have  a  plan  prepared  by  which,  among 

[31s] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

other  things,  we  could  extend  to  you  large  facilities  of  tankage  and  capital  to  take 
care  of  the  surplus  oil  until  the  present  production  can  be  checked. 

P.  H.  Watson. 


To  F.  W.  Mitchell,  New  York,  March  5,  1872. 

Franklin,  Pennsylvania. 

Just  received  another  batch  of  newspaper  slips  giving  proceedings  of  Oil  City 
meeting. 

The  meeting  acted  in  ignorance  and  under  a  radical  misconception  of  the  actual 
facts,  and  with  far  more  earnestness  and  zeal  than  judgment. 

If  you  will  take  the  trouble  to  appoint  a  committee  of  producers  to  investigate,  we 
will  show  that  the  contracts  with  the  railroads  are  as  favourable  to  the  producing 
as  to  any  other  interests;  that  the  much-denounced  rebate  will  enhance  the  price  of 
oil  at  the  wells,  and  that  our  entire  plan  in  operation  and  effect  will  promote  every 
legitimate  American  interest  in  the  oil  trade. 

You  patiently  test  a  well  before  deciding  upon  its  merits,  like  rational  men.  You 
examine  other  subjects  before  acting  upon  them.  Is  not  this  a  subject  of  sufficient 
importance  to  be  worthy  of  rational  investigation  ? 

P.  H.  Watson. 


To  F.  W.  Mitchell,  New  York,  March  6,  1872. 

Franklin,  Pennsylvania. 

Your  telegrams  received. 

My  telegrams  were  not  addressed  to  the  mass-meeting,  but  to  you  as  a  friend,  as 
is  also  this,  to  be  read  at  your  discretion  to  some  of  the  principal  producers  attending 
the  meeting,  simply  to  induce  them  to  investigate  the  subject  about  which  they  are 
excited  before  acting  upon  it. 

A  mass-meeting  is  not  a  deliberative  body;  it  always  acts  under  the  feeling  of  impulse 
or  passions,  and  meets  for  predetermined  purposes,  one  of  which  in  this  case,  as  appears 
in  the  articles  of  the  newspapers  calling  the  meeting,  was  to  denounce  and  show  its 
scorn  for  anything  and  everything  connected  with  the  South  Improvement  Company. 
Hence  it  required  no  prophet  to  tell  beforehand  in  what  spirit  my  telegrams  to  you 
would  be  listened  to.  You  ask  me  to  go  to  Franklin  to  consult  my  true  friends.  I 
will  most  gladly  meet  you  and  your  friends  at  any  place  favourable  to  calm  investiga- 
tion and  deliberation,  and  therefore  outside  of  the  atmosphere  of  excitement  by  which 
you  are  surrounded,  say  at  Albany  or  New  York. 

I  can  well  understand  that,  however,  the  excited  people  of  your  region  may  misjudge, 
they  have  no  other  purpose  than  to  promote  the  public  interest,  and  knowing  that  you 
deservedly  enjoy  their  confidence,  I  am  strongly  convinced  that  a  free  and  frank 
interchange  of  views  at  the  conference  suggested  would  result  in  satisfying  you  and 

[316] 


APPENDIX,  NUMBER  XII 

the  people  that  there  exists  no  cause  for  regarding  us  as  enemies.  I  therefore  hope  you 
will  name  an  early  day  for  the  meeting. 

P.  H.  Watson. 

Mr.  Gilfillan. 

I  would  like  to  suggest  a  question  that  would  throw  a  little  light  upon  this  subject, 
and  which  I  know  Mr.  Watson  will  be  entirely  satisfied  to  answer.  I  wish  the  chairman 
would  ask  if  the  objects  of  the  South  Improvement  Company,  in  connection  with 
railroads,  were  presented  to  the  public  through  any  statement  in  writing  or  by  telegraph 
to  the  public,  explaining  the  objects. 

The  Chairman. — I  am  coming  to  that,  but  first  I  want  to  know  of  the  witness, 
whether  he  received  any  replies  to  these  despatches  ? 

A.  Yes,  sir,  to  one  of  them. 

Q.  Have  you  a  copy  of  that  ? 

A.  I  have  not,  but  I  have  stated  the  purport  of  the  answer.  To  the  first  I  did  not 
receive  any  answer;  there  was  not  time  to  receive  any,  and  I  did  not  expect  it.  I 
sent  the  second  shortly  after,  and  the  answer  was  to  the  first  and  second  together. 
To  the  third  I  received  no  telegraphic  answer. 

Q.  You  say  you  have  no  copy  of  these  answers  you  received  ? 

A.  I  have  not.  I  gave  the  purport  of  the  answer  I  received  at  the  last  meeting. 

Q.  Were  there  any  other  letters  or  statements  published  by  your  authority  to 
the  public  or  to  parties  in  interest  among  the  producers  ? 

A.  These  were  not  published  by  my  authority. 

Q.  Was  there  any  other  matter  published  by  your  authority,  giving  explanation  to 
the  people? 

A .  I  made  similar  statements  to  a  great  many  of  the  producers. 

Q.  I  mean  documentary  evidence;  was  there  anything  published  over  your  sig- 
nature ? 

A.  Oh,  I  did  not  publish  any  document  at  all;  I  did  not  publish  this. 

Q.  Did  you  authorise  it  ? 

A.  I  neither  published  it  nor  authorised  it,  because  I  considered  it  useless;  the 
people  were  so  excited  that  they  could  not  be  reasoned  with  at  all.  Every  one  who 
informed  me  about  it  said  so. 

Q.  Did  you  offer  to  any  of  the  producers,  or  any  parties  in  interest  to  show  them 
these  contracts  ? 

A.  Yes,  I  wanted  that  committee  appointed  for  that  purpose;  I  told  them  so  sub- 
stantially in  my  despatch. 

Q.  Did  you  make  the  offer  otherwise  ? 

A.  I  told  them  that  I  would,  if  that  can  be  considered  as  an  offer.  I  said  I  would, 
and  I  should  have  done  it  if  they  had  come  to  meet  us;  but  they  were  afraid. 

[317] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Q.  Would  you  have  published  it,  do  you  mean  ? 

A.  I  should  have  been  perfectly  willing  to  publish  the  contract;  I  should  have  been 
glad  to  have  published  everything  in  connection  with  the  matter. 

Q.  If  you  would  have  been  glad  to  have  published  it,  why  did  you  not  ?  You  had 
the  power. 

A.  I  would  have  been  very  glad  to  have  done  it,  with  the  assent  of  these  men. 

Q.  With  the  assent  of  what  men  ? 

A.  The  producers.  I  said  to  some  of  the  producers  that  if  they  would  go  and  examine 
the  whole  plan,  and  after  they  had  examined  into  it  they  were  not  satisfied  that  it 
was  for  their  interest,  I  would  be  perfectly  willing  to  abandon  the  whole  thing.  That 
was  the  feeling  we  had  in  regard  to  the  matter. 

Q.  What  producers  did  you  say  that  to  ? 

A.  Several  of  them. 

Q.  Mention  their  names. 

A.  Men  with  whom  I  had  been  in  correspondence  with  on  this  subject,  and  whose 
lives  and  property  I  believe  would  not  be  safe  if  I  were  to  mention  their  names,  because 
they  have  told  me  so.  I  have  promised  not  to  expose  them,  and  I  feel  in  honour  bound 
not  to  give  their  names. 

Q.  You  have  so  promised  in  regard  to  all  of  them  ? 

A.  Most  of  those  with  whom  I  have  had  correspondence. 

Q.  Was  there  any  opportunity  offered  to  explain  this  matter,  to  show  the  contracts 
and  let  them  know  what  were  the  objects  of  your  company  ?  Are  there  no  names  you 
can  mention  in  that  connection  ? 

A.  I  shall  have  to  look  over  the  letters  in  order  to  see  if  there  are  any  not  marked 
confidential.  I  should  like  to  give  you  the  names  if  I  am  at  liberty  to  do  so. 

Mr.  Gilfillan. 

I  should  like  to  make  a  suggestion  which  would  throw  a  little  light  on  this  sub- 
ject. If  the  chairman  will  allow  me,  I  will  ask  the  witness  if  he  saw  the  proceedings 
of  the  meeting  at  Franklin,  to  which  he  refers,  and  if  so,  whether  a  resolution  was  not 
passed  at  that  meeting  asking  for  the  production  of  these  contracts  that  the  public 
might  know  what  the  objects  of  this  company  were  ? 

A.  I  have  seen  no  such  resolution;  I  do  not  think  I  have  seen  the  published  pro- 
ceedings of  that  meeting;  I  only  saw  such  parts  as  were  sent  to  me  in  slips.  There 
was  certainly  no  such  resolution  as  that  which  came  to  me.  Mr.  Mitchell  telegraphed 
to  me  that  my  telegrams  were  received  with  scorn;  that  they  did  not  want  to  know 
anything  about  the  matter. 

Q.  Do  you  remember  whether,  about  the  first  of  March,  the  railroad  companies, 
with  which  you  made  these  contracts,  or  some  of  them,  raised  their  rates  of  transpor- 
tation ? 

[318] 


APPENDIX,  NUMBER  XII 
A.  I  think  about  that  time  they  did. 

Q.  Was  it  for  a  short  time  raised  to  that  amount,  and  a  printed  schedule  pub- 
lished ? 

A .  I  never  saw  the  published  schedule;  I  understood  that  through  a  mistake  between 
William  Vanderbilt,  vice-president  of  the  New  York  Central  Railroad  Company  and 
freight  agent  of  the  Lake  Shore  road,  it  was  supposed  by  the  freight  agent  of  the  Lake 
Shore  road  that  the  rate  had  been  raised  by  an  agreement  among  the  railroads  to 
the  maximum  rates  mentioned  in  their  contracts  with  the  South  Improvement  Com- 
pany. A  day  or  two  after  that  mistake,  being  in  Mr.  Vanderbilt's  office,  a  telegram 
came  in  respect  to  it,  and  Mr.  Vanderbilt  at  once  directed  the  correction  to  be  made. 
Mr.  Devereux,  the  general  manager  of  the  Lake  Shore  Railroad,  happened  to  come 
in  at  the  time,  and  he  also  gave  directions  to  the  officers  of  his  road  to  have  the 
correction  promptly  made. 

Q.  Were  you  present? 

A.  Yes,  sir,  I  was  present.  When  I  said  "being  in  Mr.  Vanderbilt's  office,"  I  meant 
that  I  myself  was  present. 

Q.  Was  the  correction  made  at  your  instance,  or  request,  or  suggestion  ? 

A.  It  was  not. 

By  Mr.  Hambleton. 

Q.  Why  was  it  made  ? 

A.  Because  it  was  a  mistake,  a  misapprehension,  a  misunderstanding,  as  I  under- 
stood. I  had  not  heard  anything  of  it  before  that  moment,  and  it  was  accidental,  as 
I  said,  that  I  heard  it. 

By  the  Chairman. 

Q.  Then  the  rates  were  raised  by  the  freight  agents  of  the  roads  to  correspond 
with  the  rates  mentioned  in  these  contracts  ? 

A.  I  do  not  know  the  facts  any  further  than  having  heard  it  as  I  have  stated. 

Q.  And  you  think  they  were  raised  to  correspond  with  these  contracts  by  mistake  ? 

A.  I  stated  I  so  understood  at  the  time. 

Q.  You  stated  the  circumstances  so  minutely  as  to  its  being  a  mistake  between 
Mr.  Vanderbilt  and  the  Lake  Shore  agent,  that  I  inferred  you  knew  the  facts  ? 

A.  I  only  know  it  was  so  represented  at  the  time. 

Q.  Did  you  take  any  part  in  that  conversation  by  which  the  error  you  speak  of 
was  corrected  ? 

A.  Only  in  this  sense:  Mr.  Vanderbilt  mentioned  the  fact  to  me  that  a  mistake  of 
that  kind  had  been  made,  that  he  had  just  received  a  despatch  in  relation  to  it,  and 
he  was  about  to  correct  it,  and  he  asked  me,  I  think,  if  I  knew  whether  Mr.  Devereux 
had  given  any  orders  respecting  the  matter.  I  told  him  I  did  not  know  anything 
about  it. 

[319] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Q.  If  I  understand  you,  the  time  had  not  come  for  raising  the  freights  under  these 
contracts  then  ? 

A.  I  do  not  know  anything  about  the  time;  I  did  not  intend  to  make  any  such 
statement. 

By  Mr.  Hambleton. 

Q.  At  that  time,  as  president  of  the  South  Improvement  Company,  was  it  not  the 
understanding,  and  was  it  not  your  expectation,  that  the  rates  would  go  up  at  that   ! 
time  as  they  did  go  up  to  the  maximum  rates  named  in  these  contracts  ? 

A.  I  do  not  know  that  as  president  I  had  any  knowledge  of  the  matter;  and  asf 
an  individual  I  took  no  part  in  the  transaction. 

Q.  The  president  is  an  officer  supposed  to  know  more  about  such  details  than  any 
of  the  directors  or  members  of  the  company;  and  as  president  of  that  company  I  ask 
you  if  it  was  not  the  general  understanding  that  the  rates  would  go  up  about  that  time  ? 

A.  I  answer  distinctly  that  it  was  not,  and  that  as  president  of  that  company  I 
had  nothing  to  do  with  the  rates  then,  because  the  South  Improvement  Company's 
contracts  had  not  gone  into  operation,  and  neither  the  South  Improvement  Company 
nor  any  of  its  officers  had  any  control  of  the  question  in  any  way. 

Q.  Had  not  the  contracts  at  that  time  been  signed  ? 

A.  The  contracts  had  been  signed,  but  they  were  held  by  me  personally  in  escrow 
and  they  had  not  gone  into  effect. 

Q.  They  had  been  signed  ? 

A.  Yes,  but  had  not  gone  into  effect. 

Q.  Were  not  these  contracts  so  signed  and  held  by  you  as  president  of  the  South 
Improvement  Company,  and  did  you  not  expect  that  the  rates  would  advance  to  the 
maximum  named  therein  at  that  time  ? 

A.  Certainly  I  did  not;  and  in  regard  to  the  premises  stated  in  the  first  part  of 
your  question  I  do  not  want  to  admit  the  statements  you  made.  I  do  not  suppose  the 
object  was  to  entrap  me  into  an  admission  of  a  statement  that  is  not  true. 

Mr.  Hambleton. — I  do  not  wish  to  entrap  you  into  anything. 

Witness. — I  say  that  when  you  remark  that  I  hold  these  contracts  as  president  of 
the  South  Improvement  Company,  you  mistake;  they  were  not  in  my  hands  as  presi- 
dent. 

Q.  I  supposed  that  as  president  they  passed  into  your  hands  ? 

A.  They  were  passed  into  my  hands  as  a  person,  and  as  such,  in  execution  of  the 
trust,  I  should  hold  them  as  much  against  the  South  Improvement  Company  as  against 
anybody  else. 

Q.  You  answer  my  question  then  that  you  did  not  expect  them  to  raise  these  rates  ? 

A.  Certainly  I  did  not;  I  had  no  such  idea  at  all. 

Q.  State  how  that  mistake,  or  misunderstanding,  or  error,  happened  to  occur, 
and  what  was  the  cause  of  it  ? 

[320] 


APPENDIX,  NUMBER  XII 

A.  I  really  do  not  know;  it  was  suggested  at  the  time  by  Mr.  Devereux  that  Mr. 
Hills,  the  freight  agent  of  the  Lake  Shore  Railroad,  had  a  son  on  his  death-bed,  that 
he  had  to  leave  the  office  in  charge  of  subordinates,  and  that  he  had  not  his  wits  about 
him  as  usual,  because  his  mind  was  so  pre-occupied  with  the  sickness  of  his  son,  who 
was  a  favourite  son. 

Q.  If  he  had  not  his  wits  about  him,  had  he  the  contracts  ? 

A .  I  do  not  wish  to  use  that  expression  in  any  offensive  sense;  I  mean  he  had  not 
the  full  use  of  his  mind.  I  do  not  know  whether  he  had  the  contracts  or  not.  I  think 
it  is  probable  from  the  conversation  there  that  all  the  freight  agents  had  the  rates 
mentioned  in  these  contracts;  I  have  no  doubt  that  the  officers  of  the  roads  had  con- 
sulted him;  indeed  some  of  them  stated  that  they  had  been  consulted,  and  that  the 
freight  agents  knew  what  rates  were  provided  for  in  these  contracts. 


Q.  I  want  an  answer  to  my  question.  By  your  contracts  with  the  railroad  com- 
panies you  were  to  purchase  all  the  refineries  in  the  main  cities  of  this  country.  You 
had  it  in  your  power  to  furnish  more  transportation  than  anybody  else  ? 

A.  The  refineries  were  not  purchased;  they  have  not  been  purchased. 

Q.  Was  not  that  contemplated  ? 

A.  The  company  contemplated  purchasing  if  it  had  gone  into  operation. 

Q.  I  am  getting  at  the  point  now;  if  your  scheme  had  been  successful  do  you  sup- 
pose anybody  in  the  world  could  have  furnished  an  equal  amount  of  transportation 
with  your  company  ? 

A.  If  our  plan  had  been  carried  out  it  included  everybody;  there  would  have  been 
nobody  left,  and  no  hostile  interest. 

Q.  You  would  have  had  the  matter  perfectly  under  your  control  ? 

A.  Yes,  because  there  would  have  been  nobody  left. 

Q.  Then  I  am  correct  in  saying  that  nobody  else  could  have  shipped  oil  under  any 
circumstances,  because  you  were  to  have  an  additional  rebate  in  case  any  rebate 
was  allowed  to  any  other  person  ? 

A.  But  if  all  interest  was  drawn  into  the  plan,  there  would  have  been  no  hostile 
party  and  no  injustice  done  to  anybody. 

Q.  That  is  a  different  matter;  now  we  agree  that  your  advantages  of  rebate  from 
the  leading  roads  gave  you  the  power  of  paying  larger  prices  to  the  oil  producers  than 
anybody  else  ? 

A.  It  was  expected  that  these  rebates  would  enable  the  refiners  and  producers  to 
maintain  a  fair  price  for  crude  oil  at  the  wells. 

Q.  Will  you  answer  my  question  ?  Could  you  not  have  purchased  oil  and  shipped 
it  with  these  rebates,  on  terms  that  nobody  else  could  compete  with  ? 

A,  If  everything  had  been  successful,  if  the  South  Improvement  Company  had 

[321  ] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

gone  into  successful  operation,  combining  all  these  various  interests,  of  course  we 
could  have  paid  a  higher  price  than  anybody  else. 

Q.  Do  you  not  see  then  that  you  had  the  producers  of  the  Oil  Regions  absolutely 
in  your  control  ? 

A.  No,  sir. 

Mr.  Sheldon. — I  do. 

Witness. — I  do  not,  and  will  tell  you  why;  you  asked  me  a  question  that  is  a  good 
deal  like  attempting  to  make  the  Bible  prove  that  it  says  itself  "that  there  is  no  God." 

The  Chairman. — All  our  time  is  being  expended  in  this  way.  Will  you  answer 
the  direct  question  put  to  you  ? 

Witness. — I  want  to  answer  it  truly.  It  is  an  essential  part  of  this  contract  that  the 
producers  should  be  joined  in  it;  therefore  it  was  not  hostile  to  the  producers  in  any 
of  its  intents  or  purposes;  it  never  would  have  gone  into  effect  unless  the  producers 
had  joined. 

By  Mr.  Sheldon. 

Q.  That  may  be  the  fact,  but  if  the  producers  had  refused  to  join,  could  you  not 
have  forced  them  into  the  arrangement  on  your  own  terms  ? 

A.  No,  sir;   because  the  South  Improvement  Company  had  no  contract. 

Q.  You  have  a  contract  ? 

A.  No,  sir;  it  has  no  contract. 

Q.  Did  it  never  have  ? 

A.  No,  sir;  they  are  placed  in  escrow  with  me.  It  has  never  had  any,  that  is,  there 
is  not  to-day  and  has  not  at  any  time  been  a  contract  in  existence,  in  activity,  or  in 
force  between  the  railroads  and  the  South  Improvement  Company. 

By  Mr.  Hambleton. 

Q.  Is  not  that  entirely  due  to  the  excitement  produced  in  consequence  of  the  con- 
tracts having  been  entered  into  ? 

A.  If  the  purchasers  had  entered  into  the  contract  which  was  contemplated  by  the 
South  Improvement  Company,  it  would  have  been  entirely  satisfactory  to  all  parties, 
and  both  contracts  would  have  gone  into  operation. 

Q.  And  if  a  party  of  the  producers  had  joined,  you  could  have  forced  the  balance 
to  have  gone  into  the  arrangement  ? 

A.  Two-thirds  were  required. 

Q.  You  could  have  forced  the  balance  to  have  gone  in  ? 

A.  The  majority  rules  in  most  kinds  of  business;  unless  two-thirds  had  joined,  no 
arrangement  would  have  been  made. 

Q.  Let  us  see  whether  you  have  not  power  to  force  the  producers;  by  your  contract 
with  the  railroads  you  had  the  advantage  of  forty  cents  a  barrel  to  Cleveland  and  Pitts- 
burg, and  #1.06  to  New  York,  Philadelphia,  Baltimore  or  Boston  on  crude  petroleum; 
while  on  refined  petroleum  you  had  the  advantage  to  these  cities  of  fifty  cents  a  barrel, 

[322] 


APPENDIX,  NUMBER  XII 

and  from  any  other  point  to  New  York,  Philadelphia,  Baltimore  and  Boston  of 
thirty-two  cents  a  barrel;  it  seems  to  me  at  that  advantage  you  could  have  compelled 
the  producers  to  do  exactly  what  you  wanted  them  to  do  ? 

A.  The  South  Improvement  Company  never  could  have  had  that  advantage,  because 
the  condition  on  which  the  main  contract  with  the  railroads  was  to  be  enforced  was 
that  the  producers  should  join  with  them  and  participate  in  the  benefits. 

Q.  Is  that  embodied  in  the  different  contracts  ? 

A.  The  condition  is  not  embodied  upon  the  face  of  the  contract;  it  is  a  condition 
upon  which  I  held  the  contracts. 

Q.  Now  Mr.  Watson,  as  a  lawyer,  if  you  are  such,  are  verbal  conditions  made  with 
a  third  party  to  change  the  terms  of  a  written  contract  executed  in  all  respects  ? 

A .  Let  me  give  you  an  illustration  within  my  experience  that  is  exactly  parallel 
to  this:  I  had  a  note  executed,  sealed,  and  complete  in  every  way,  put  into  my  posses- 
sion to  be  delivered  upon  the  production  of  a  deed. 

The  Chairman. — Wait  a  moment,  there  must  be  some  kind  of  order  in  this  pro- 
ceeding. I  wish  you  to  answer  the  question  which  has  been  asked  you,  whether  as 
a  lawyer  the  conditions  stated  would  change  the  terms  of  a  written  contract.  If  you 
are  able  to  give  an  answer  to  that  legal  question  you  may  do  so. 

Witness. — Let  me  hear  the  question  and  I  will  endeavour  to  answer  it  fully,  if  you 
will  allow  me  to  answer  it  in  my  own  way. 

By  Mr.  Sheldon. 

Q.  The  question  is,  whether  a  verbal  understanding  to  be  performed  by  other 
parties  not  embraced  in  the  written  contract  can  be  made  effective  to  modify  the 
terms  of  that  contract  as  between  the  parties  to  it. 

A.  An  agreement  between  the  parties  to  a  contract,  whether  verbal  or  written, 
fixing  the  terms  upon  which  the  contract  shall  go  into  effect,  is  perfectly  competent 
and  would  be  binding. 

Q.  That  is  your  opinion  as  a  lawyer  ? 

A.  That  is  my  opinion. 

Q.  Now,  sir,  these  contracts  contemplated  a  considerable  increase  in  the  freight 
charges,  both  upon  crude  and  refined  petroleum  ? 

A.  They  contemplate  an  increase  almost  up  to  the  price  for  coal  and  lumber,  as 
they  are  ordinarily  carried,  amounting  to  about  I \  cents  a  pound. 

Q.  Did  it  contemplate  an  increase  upon  both  crude  petroleum  and  refined  oil  ? 

A.  Certainly;  the  railroads  had  been  carrying  these  articles  at  a  loss  of  nearly  a 
million  dollars;  they  carried  for  less  than  cost,  and  one  object  of  these  contracts  was 
to  increase  the  price  of  freight  to  the  railroads. 

The  Chairman. — Let  me  suggest  the  propriety  of  first  answering  the  question  and 
then  giving  your  explanation.  That  is  the  regular  course,  and  I  am  sorry  to  say  that 
during  your  whole  examination  there  has  not  been  a  direct  answer  given  to  a  question. 

[323] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Witness. — Well,  sir,  where  a  question  is  such  that  it  would  give  a  false  impression] 
unless  answered  fully  and  fairly,  I  do  not  want  to  convey  that  false  impression  by 
my  testimony. 

Mr.  Sheldon. 

Q.  Very  well,  I  am  satisfied  with  your  explanation;  now  could  not  these  railroad 
companies  have  raised  the  price  of  freight  without  the  intervention  of  the  South  Im- 
provement Company  ? 

A.  There  were  a  good  many  difficulties  in  the  way. 

Q.  Could  they  not  have  done  it,  and  had  they  not  the  power  to  do  it  ? 

A.  The  laws  of  the  State  of  New  York  forbid  the  Erie  and  New  York  Central 
Railroads  from  combining  to  raise  the  rates  of  freight;  whether  they  could  have  done 
it  I  do  not  know.  They  tried  very  hard  to  agree  to  raise  the  freights  but  did  not  succeed. 

Q.  If  that  is  the  law  of  New  York,  is  there  an  exception  to  that  law  so  that  they 
could  combine  with  the  South  Improvement  Company  ? 

A.  I  think  it  was  the  opinion  of  lawyers  that  this  arrangement  was  perfectly  legal 
and  proper;  they  could  not  combine,  but  they  could  make  an  independent  agreement. 

Q.  They  could  raise  the  rates  in  your  behalf,  but  they  could  not  in  the  behalf  of 
anybody  else  ? 

A.  Not  in  behalf  of  anybody,  but  they  could  make  this  transaction.  For  two  or 
three  years  they  had  been  cutting  under  for  the  purpose  of  drawing  the  business  away 
from  each  other. 

Q.  What  effect  would  this  increase  of  freight  have  upon  the  consumers  of  oil  ? 

A.  I  think  it  would  not  be  to  the  prejudice  of  the  consumers  in  this  country  at  all. 

Q.  Would  it  not  have  increased  the  price  ? 

A.  I  think  it  would  not  have  increased  the  price  to  the  retail  consumers  in  this 
country.  If  there  had  been  no  countervailing  advantage  to  the  retail  consumers,  of 
course  it  would  have  increased  the  price. 

Q.  You  mean  to  say  that  there  was  such  a  margin  upon  the  traffic  of  oil  that  to 
increase  the  freight  charges  fifty  or  ioo  per  cent,  would  not  affect  the  retail  price  ? 

A.  No,  sir;  I  do  not  mean  to  say  that  is  the  reason. 

Q.  Is  that  not  the  effect  of  your  answer  ? 

A.  No,  sir,  I  think  not.  My  explanation  of  it  is  this:  that  the  oil  trade,  unless  it 
is  steadied  by  some  artificial  process,  is  subject  to  violent  and  rapid  fluctuation. 
The  retailers  are  very  quick  to  note  a  rise  in  price,  as  I  explained  the  other  day,  but 
very  slow  to  notice  a  fall,  so  that  the  average  price  of  a  retail  purchaser  is  very  much 
above  the  average  wholesale  price.  Now  it  was  expeetcd  that  the  price  under  this  ar- 
rangement would  be  a  steady  price,  and  that  with  a  steady,  regular  price  it  would 
not  cause  the  retailer  to  raise  the  price  at  which  he  sold  at  all. 

Q.  Do  you  know  what  profit  is  made  on  a  barrel  of  oil  sold  by  retailers  to  con- 
sumers in  Northern  Ohip-? 

[324] 


APPENDIX,  NUMBER  XII 

A.  It  varies. 

Q.  Does  it  ever  reach  over  #1.75  a  barrel  ? 

A.  I  can  answer  your  question  with  a  little  calculation.  (After  computation.)  I 
have  known  it  to  be  sold  at  as  low  a  profit  as  forty  cents  a  barrel.  About  six  or  eight 
cents  a  gallon  is  a  fair  profit. 

Q.  We  gentlemen  are  supposed  to  be  acting  for  the  public  good;  will  you  tell  us 
what  public  interest  you  are  advancing,  or  thought  you  were  advancing  in  making 
the  arrangements  that  are  foreshadowed  in  these  contracts  ? 

A.  We  were  advancing  the  interests  of  the  railroads,  the  transporting  interest,  the 
interest  of  the  producers,  those  who  mine  oil,  the  interest  of  the  refiners,  those  who 
manufacture  it,  and  the  interests  of  the  American  trade  and  business  generally,  for 
five-sixths  of  the  oil  produced  is  exported,  and  an  increase  in  the  price  of  crude  oil 
at  the  mines  is  essential  to  the  payment  of  a  fair  business  profit  to  the  refiners;  it  is 
essential  to  the  payment  of  a  fair  rate  of  transportation,  because  without  a  higher 
price  of  transportation  more  profit  to  the  refiners  could  not  be  paid  long  and  allow 
the  producer  pay  for  his  labour  at  the  average  price  of  oil  last  year. 

Q.  Do  you  not  think  the  interests  of  trade  in  this  country  are  better  promoted  by 
leaving  everybody  to  attend  to  their  own  matters  and  protect  their  own  rights  rather 
than  by  forming  a  combination  as  you  did  ? 

A .  It  is  essential  in  many  cases  beyond  individual  means  to  form  combinations. 
Railroads  cannot  be  built  without  the  co-operation  of  a  great  many  individuals.  There 
are  a  great  many  other  operations  that  cannot  be  managed  successfully  without  co- 
operation, and  this  is  one  of  them. 

Q.  Did  the  producers  ask  you  to  go  into  this  operation  ? 

A .  The  most  intelligent  producers  did,  and  to-day,  my  judgment  is,  that  they  are 
all  satisfied  that  something  of  that  kind  is  necessary  for  the  protection  of  American 
industry. 

Q.  Did  the  consumers  ask  you  to  go  into  it  ? 

A.  Not  any  considerable  number  of  consumers;  we  ourselves  are  all  consumers. 
The  body  of  them  did  not. 

Q.  How  much  money  would  the  railroad  companies  have  made  under  these  con- 
racts  if  they  had  shipped  oil  at  these  advanced  rates  ? 

A.  They  would  have  made  about  the  same  profits  on  that  business  that  they  do 
►n  coal  and  lumber,  even  if  the  maximum  rates  had  been  paid  without  any  rebate; 
not  so  much  if  the  net  rates  only  had  been  charged. 

I      By  the  Chairman. 
Q.  State  whether  in  your  judgment  it  was  necessary,  in  order  to  make  provision 
for  these  people  for  the  South  Improvement  Company  to  receive  this  million  dollars 
a  year  for  the  benefit  of  American  interest,  as  you  have  suggested. 
A.  There  was  no  such  provision  made,  as  I  understand  it. 

[325] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Q.  The  testimony  is  that  about  six  million  barrels  a  year  are  shipped;  the  pro- 
visions of  this  contract  are  that  a  rebate  to  that  company,  supposing  the  maximum 
to  have  been  charged,  should  be  over  a  dollar  a  barrel. 

A.  No  such  thing  as  charging  maximum  rates  was  ever  contemplated.  The  contract 
on  its  face  says  it  is  a  cardinal  principle  that  the  gross  rates  shall  be  kept  as  near  the 
net  rates  as  possible. 

Q.  Suppose  it  had  been  kept  at  the  gross  rates,  your  company  would  then  have 
received  over  six  million  ? 

A.  That  would  be  altogether  different  from  the  principles  on  which  the  contract 
was  based. 

Q.  If  the  gross  rates  which  the  contract  allows  had  been  paid,  however,  the  South 
Improvement  Company  would  have  received  a  rebate  of  over  six  million  dollars  ? 

A.  Certainly,  supposing  such  an  absurdity. 

Q.  Why  did  you  put  such  an  absurdity  in  the  contract  ? 

A.  It  is  not  in  the  contract,  as  I  stated. 

By  Mr.  Hambleton. 

Q.  It  is  the  contract  as  a  maximum  ? 

A.  But  it  is  also  expressly  stated  that  the  rates  shall  be  kept  as  near  to  net  rates  as 
possible. 


[326] 


NUMBER   13   (See  page  93) 


CONTRACT  OF  MARCH   25,  1872 

[From  "A  History  of  the  Rise  and  Fall  of  the  South  Improvement  Company," 
pages  27-28.] 

I.  That  all  arrangements  for  the  transportation  of  oil  after  this  date  shall  be  upon 
basis  of  perfect  equality  to  all  shippers,  producers  and  refiners,  and  that  no  rebates, 

drawbacks,  or  other  arrangements  of  any  character,  shall  be  made  or  allowed  that 
will  give  any  party  the  slightest  difference  in  rates  or  discrimination  of  any  character 
whatever. 

II.  That  the  present  rates  from  Oil  City,  Union,  Corry,  Irvineton,  Pittsburg,  Cleve- 
land and  other  competing  points,  shall  be  and  remain  in  full  force  at  following  rates : 

ON   REFINED   OIL,    BENZINE,    ETC. 

Per  barrel 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Boston #1.65 

From  Oil  City,  Union,  Corry  and  Irvineton  to  New  York 1.50 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Philadelphia 1.35 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Baltimore 1.35 

From  Cleveland  to  Boston 1 .65 

From  Cleveland  to  New  York 1.50 

From  Cleveland  to  Philadelphia 1.35 

From  Cleveland  to  Baltimore 1.35 

From  Pittsburg  to  New  York 1.50 

From  Pittsburg  to  Philadelphia 1.35 

From  Pittsburg  to  Baltimore 1.35 

ON    CRUDE    OIL 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Boston #1-5° 

From  Oil  City,  Union,  Corry  and  Irvineton  to  New  York 1.35 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Philadelphia 1.20 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Baltimore 1.20 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Cleveland 5° 

From  Oil  City,  Union,  Corry  and  Irvineton  to  Pittsburg 50 

And  said  rates  shall  not  be  liable  to  any  change  either  for  increase  or  decrease  without 
first  giving  to  William  Hasson,  president  of  the  Producers'  Union  at  Oil  City,  at  least 
ninety  days'  notice  in  writing  of  such  contemplated  change. 

[327] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

III.  In  the  distribution  of  cars  for  shipments,  it  shall  be  done  without  discrimina- 
tion. 

IV.  On  the  basis  as  hereinbefore  stated,  the  parties  respectively  agree  to  carry  out 
the  arrangements  in  good  faith  and  work  for  the  mutual  interests  of  each  other. 

In  witness  whereof  the  parties  have  hereunto  affixed  their  signatures,  this  twenty- 
fifth  day  of  March,  a.d.  1872: 

For  the  Lake  Shore  and  Michigan  Southern  Railroad  Company:  H.  F.  Clark, 
President. 

For  the  Erie  Railway  Company:  O.  H.  P.  Archer,  Vice-President. 

For  the  New  York  Central  and  Hudson  River  Railroad  Company:  William  H. 
Vanderbilt,   Vice-President. 

For  the  Atlantic  and  Great  Western  Railroad  Company:  George  B.  McClellan, 
President. 

For  the  Pennsylvania  Railroad  Company:  Thomas  A.  Scott,  Vice-President. 

On  behalf  of  the  Producers  and  Refiners:  G.  Shamburg,  E.  G.  Patterson, 
William  Hasson,  Henry  Byrom,  William  Parker,  John  J.  Fisher,  Oil  Creek 
Producers  and  Refiners. 

J.  J.  Vandergrift,  A.  P.  Bennett,  William  M.  Irish,  William  T.  Scheide, 
Oil  City  Producers  and  Refiners. 

Henry  H.  Rogers,  F.  C.  Fleming,  Josiah  Lombard,  Jr.,  New  York  Refiners. 

B.  Vaughan,  Boston  Refiners. 


[328] 


NUMBER   14  (See  page   100) 

TESTIMONY  OF  HENRY  M.   FLAGLER 
[Before  a  committee  appointed  by  the  Legislature  of  Ohio,  March,  1879.] 

Henry  M.  Flagler;  residence,  Cleveland,  Ohio;  occupation,  secretary  Standard  Oil 

>mpany;  sworn  and  examined. 

By  Mr.  Norton. 

Mr.  Flagler,  I  suppose  you  understand  that  this  investigation  is  brought  under 

tat  is  known  as  House  Resolution  Number  162  ? 
I  understand  that  it  is. 

Q.  How  long  have  you  been  secretary  of  the  Standard  Oil  Company  ? 

A.  Since  its  organisation,  some  time  in  January,  1870. 

Q.  Are  the  articles  manufactured  or  the  oil  refined  by  your  company  shipped  over 
the  line  of  any  railroad  in  the  State  of  Ohio,  and  if  so,  state  whether  or  not  any  rate 
of  freight  is  contracted  for  by  you  or  whether  your  company  pays  the  freight  ? 

A.  To  the  first  question,  yes,  sir;  more  or  less  of  the  product  of  our  refineries  is 
shipped  over  the  railroads  of  the  state.  As  a  rule  all  of  the  freight  contracts  have  been 
made  by  me. 

Q.  Please  state  as  near  as  you  can  what  proportion  of  your  product  is  shipped 
out  of  the  state  ? 

A.  Well,  I  should  say  from  sixty-five  to  seventy  per  cent. 

Q.  Now,  has  your  corporation  any  contracts,  written  or  verbal,  with  any  of  the 
railroads  of  the  State  of  Ohio  for  carrying  your  freight  ? 

A.  Yes,  sir. 

Q.  You  may  state  whether  these  contracts  are  written  or  verbal. 

A.  They  are  written. 

Q.  Have  you  heretofore,  prior  to  this  time,  any  contracts  written  or  verbal  ? 

A.  We  have. 

Q.  You  may  state,  Mr.  Flagler,  whether  by  virtue  of  these  contracts  it  has  been 
agreed  or  allowed  by  the  railroad  companies  to  pay  you  any  drawbacks  or  rebates 
on  freights. 

A.  No,  sir,  it  has  not. 

Q.  You  may  state  whether  or  not  you  are  allowed  special  rates,  or  what  is  known 
as  special  privileges. 

[329] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

A.  I  can't  answer  that  question  from  the  fact  that  I  do  not  know  what  other  people 
get,  so  I  do  not  know  whether  they  are  special  rates  or  general. 

Q.  I  believe,  Mr.  Flagler,  that  in  your  subpoena  it  was  requested  of  you  that  if 
any  such  contracts  were  in  existence  relative  to  freight  matters,  you  would  bring 
them  before  the  committee.  Did  you  do  so  ? 

A.  I  have  never  seen  the  subpoena,  so  I  do  not  know  what  the  demand  was.  I 
have,  however,  contracts  made  with  our  company  as  far  back  as  the  first  one  ever  made. 

Q.  Can  you  produce  these  contracts  before  this  committee  ? 

A.  Yes,  sir,  I  can;  I  am  willing  to  do  so,  provided  they  may  be  used  by  the  com- 
mittee— if  it  is  proper  to  ask,  to  be  used  in  the  nature  of  a  confidential  communication. 
None  of  these  contracts  provides  for  any  discrimination  whatever,  but  they  may  contain 
some  business  secret  of  the  Standard  Oil  Company,  whose  interests  I  am  bound  to 
protect.  I  do  not  see  how  the  submission  of  those  contracts  as  evidence  in  this  case 
will  do  other  than  bear  out  the  statement  I  have  made  under  oath.  I  do  not  see  how 
they  will  do  anything  more  than  sustain  the  statements  I  have  made.  I  would  be  very 
glad  to  have  our  company  set  right  before  the  public  in  these  matters,  but  I  do  not 
care  enough  about  it,  however,  to  have  our  business  contracts  made  public.  I  should 
be  very  glad  to  submit  them  to  you  under  such  circumstances. 

Q.  Mr.  Flagler,  do  you  know  anything  about  the  rates  of  freight  from  the  Southern 
portions  of  the  state,  well,  say  from  Marietta  and  from  Wheeling  to  the  City  of 
Columbus  ? 

A.  I  do  not. 

Q.  Did  you  have  anything  to  do,  or  has  the  Standard  Oil  Company  anything  to 
do  with  the  making  of  the  rates  of  freight  for  the  company  known  as  the  Camden 
Consolidated  ? 

A .  None  whatever. 

Q.  Have  you  anything  to  do  with  the  making  of  the  rate,  or  the  arranging  of 
the  freights  for  the  company  known  as  the  Marietta  Oil  Refining  Company  ? 

A.  None  whatever. 

Q.  Testimony  introduced  here  shows,  I  think,  Mr.  Flagler,  that  about  one  year 
ago  the  rates  of  freight  were  raised  nearly  one-half  from  the  points  I  have  mentioned 
and  from  Parkersburg  and  other  places  to  points  in  this  direction.  Had  the  Standard 
Oil  Company  any  understanding  by  and  between  the  railroad  companies  in  regard 
to  this  rise  in  the  rates  of  freight  ? 

A.  I  should  say,  to  my  own  knowledge,  positively  no;  I  never  heard  of  it  before. 
I  do  not  know  what  the  rates  were  and  I  did  not  know  that  the  raise  had  been  made. 

Q.  Do  you  in  your  capacity,  or  does  the  Standard  Oil  Company  through  its  agents, 
control  the  rates  of  freight  or  make  the  rates  of  any  of  the  oil  companies  in  Cleveland, 
outside  of  your  own  corporation  ? 

A.  No,  sir. 

[330] 


APPENDIX,  NUMBER  XIV 

Q.  Mr.  Flagler,  what  is  your  rate  of  freight  from  the  seaboard,  or  to  the  seaboard 
from  Cleveland  ? 

A.  At  the  present  time  ? 

Q.  Yes,  sir,  at  the  present  time. 

A.  Do  you  mean  per  carload  or  by  the  barrel  ? 

Q.  Well,  we'll  put  it  by  the  barrel,  as  there  is  some  testimony  before  the  committee 
relating  to  that. 

A.  I  do  not  know  that  I  could  answer  the  question  and  I  do  not  know  but  that  I 
would  be  betraying  the  business  interests  of  other  people.  The  custom  for  several  years, 
in  fact,  for  more  than  five  years,  has  been  that  the  rates  of  freight  on  shipments  to 
the  seaboard  and  export  oil  have  been  made  by  what  is  called  trunk  lines,  the  New 
York  Central,  the  Erie,  now  New  York,  Lake  Erie  and  Western,  the  Pennsylvania, 
and  Baltimore  and  Ohio.  The  general  freight  agents  are  the  officers  who  make  those 
rates,  and  their  Western  connections  share  in  them.  I  do  not  know  how  the  freight 
which  is  paid  for  services  rendered  is  divided  between  their  Western  connections, 
having  no  means  of  knowing  that  at  all.  We  do  not  make  any  contracts  with  the  Lake 
Shore  for  the  rates  of  freight,  and  the  same  is  equally  true  of  the  Atlantic  and  Great 
Western.  These  are  the  only  two  roads  we  ever  ship  by — I  may  be  wrong;  we  ship 
some  by  way  of  Pittsburg,  over  the  Cleveland  and  Pittsburg  or  over  the  Baltimore 
and  Ohio. 

Q.  Do  you  know  what  the  open  rate,  the  published  rate  is  to  the  seaboard  by  the 
barrel  ? 

A.  To  Boston  and  New  York,  $1.54!;  to  Philadelphia  and  Baltimore,  $1.29$. 

Q.  Now,  Mr.  Flagler,  you  have  used  your  pencil  to  arrive  at  that  conclusion,  why 
was  it  necessary  to  figure  out  that  matter  if  there  is  a  published  rate  ? 

A.  Simply  because  I  do  not  keep  that  thing  in  my  mind  and  had  to  call  upon  my 
memory  for  the  way  the  thing  is  got  at.  I  got  at  that  by  deducting  what  is  called  the 
crude  rebate.  Nobody  pays  the  crude  rebate  which  is  45^  cents.  Whether  that  form  is 
kept  up  by  the  railroad  companies  I  do  not  know,  but  my  impression  is  k  is  not. 

Q.  It  is  a  fact,  isn't  it,  that  you  do  get  a  lower  rate  and  pay  less  freight  than  the 
published  rate  ?  I  believe  it  is  in  evidence  that  the  open  rate  of  freight  to  the  seaboard 
will  average  about  #1.65. 

A.  I  have  never  seen  the  freight  tariff,  if  you  mean  that  which  is  known  as  the 
schedule  rate  published  for  the  public.  I  have  not  seen  anything  of  the  kind  and  do 
not  know  anything  about  it. 

Q.  What  inducement  does  your  company  offer  to  the  railroads  or  what  propositions 
are  made  by  the  railroads  to  your  company  ?  Now,  I  refer  to  the  testimony  given  by 
Mr.  Hills  in  regard  to  the  carrying  of  oils,  etc.,  what  inducements  do  the  railroad 
companies  give  whereby  they  lower  your  rate  of  freight  ? 

A.  They  do  not  give  us  lower  rates  of  freight  for  any  consideration  of  that  kind. 

[331] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

They  pay  us  for  the  use  of  our  property,  if  we  furnish  them  with  terminal  facilities, 
cars  in  which  to  haul  the  goods,  they  pay  us  a  compensation  for  the  use  of  the  property. 
Perhaps  I  can  give  it  so  you  can  understand  it;  we  keep  a  separate  account  with  each 
refinery  and  if  we  spend  #50,000,  or  #100,000  to  create  what  we  term  terminal  facilities, 
warehouses,  loading  places,  etc.,  we  make  an  arrangement  whereby  they  pay  us  a 
fair  compensation  for  the  property  that  is  created  by  our  money.  That  consideration 
is  credited  to  that  investment  and  has  nothing  whatever  to  do  with  the  freight.  The 
refinery  making  the  oil  is  charged  with  the  rate  of  freight  just  as  anybody  else  pays, 
and  the  compensation  for  the  use  of  tank  cars  and  terminal  facilities  at  the  shipping 
and  receiving  ends  of  the  line  is  given  for  the  use  of  these  ends.  I  will  say  that  in  the 
contracts  we  have  made,  the  railroad  companies  have  expressly  reserved  the  right 
to  give  to  other  parties  the  same  privileges  if  they  furnish  the  same  conveniences. 

Q.  Does  the  Standard  Oil  Company  own  and  control  the  Camden  Consolidated 
Company  at  Parkersburg  ? 

A.  Well,  I  would  like  to  ask  a  question  in  reply,  and  that  is,  whether  that  question 
and  answer  comes  within  the  scope  of  this  resolution  ? 

Q.  I  will  give  you  my  reason  for  asking  the  question.  It  has  been  charged  here  by 
witnesses  that  there  is  a  collusion  by  and  between  the  railroads  in  the  Southern  part 
of  the  state  and  the  Camden  Consolidated  Oil  Company  or  the  Standard  Oil  Company, 
as  they  term  it,  for  discriminations  in  the  rates  of  freight.  Now,  to  find  out  whether 
or  not  there  is  anything  for  which  to  blame  the  Standard  Oil  Company,  I  ask  this 
question. 

A.  Well,  it  is  a  business  secret  of  our  company,  but  considering  the  circumstance, 
I  will  answer  the  question.  The  Standard  Oil  Company  doesn't  own  or  control  the 
Camden  Oil  Company,  and  I  would  say  to  every  man  explicitly  and  fully  that  the 
Standard  Oil  Company  doesn't  own  a  share  of  stock  in  the  Camden  Consolidated 
Company.  I  say  this  so  I  may  be  understood  and  I  hope  I  have  done  so.  I  do  not 
own  a  share  in  it  myself. 

Q.  Coming  back  to  this  question  of  the  contracts,  have  you  any  of  the  written 
contracts  that  have  been  or  are  now  in  force,  that  you  can  give  this  committee;  con- 
tracts between  the  railroad  companies  traversing  this  state  and  your  company  ? 

A.  Yes,  sir.  (Contracts  produced.)  The  price  for  the  shipment  of  oil  per  barrel  as 
given  in  the  first  contract  for  the  year  1870  was  as  follows:  From  the  first  of  February 
to  the  first  of  June,  1870,  $1.40;  from  the  first  of  June  to  the  first  of  November,  1870, 
#1.20;  this  was  during  the  season  of  navigation.  From  the  first  of  November  until 
the  expiration  of  the  contract,  April  1,  #1.60. 

Q.  Is  there  a  line  or  clause  in  that  contract  whereby  there  is  an  agreement  for  re- 
bates or  drawbacks  ? 

A.  None  whatever. 

Second  contract  read:  In  this  contract  the  rates  were  as  follows:  From  the  first 

[332] 


APPENDIX,  NUMBER  XIV 

of  April  until  the  middle  of  November,  1872,  about  seven  months,  £1.25.  For  the 
remainder  of  November,  December,  January,  February  and  March  of  1873,  £1.40. 
These  were  rates  per  barrel. 

Q.  Were  there  no  rebates,  drawbacks,  or  special  privileges  given  outside  of  what 
is  written  in  the  contract  ? 

A.  None  whatever.  (Third  contract  introduced.) 

Mr.  Flagler:  I  want  to  say  something  of  this  matter  and  I  want  to  tell  the  whole 
truth.  Our  business  was  at  the  time  about  4,000  barrels  a  day  and  we  had  contracted 
this  oil  for  delivery  at  once,  and  we  had  to  pay  from  #50  to  $150  gold  per  day  if  we 
kept  it  an  hour  longer  than  the  time  specified  in  the  contract,  so  it  was  very  important 
for  us  that  the  railroads  put  these  on  board  as  rapidly  as  possible. 

Q.  Mr.  Flagler,  from  the  reading  of  that  contract  I  see  that  you  might,  instead 
of  being  benefited,  sustain  damages  by  the  failure  on  the  part  of  the  railroad  company 
to  get  your  oil  in  there.  Did  you  ever  have  to  pay  any  demurrage  to  them  ? 

A.  Yes,  sir,  we  had  to  pay  some  years  as  high  as  $30,000. 

Q.  Have  you  ever  received  any  benefits  by  reason  of  these  contracts  that  any  other 
shipper  might  not  have  received  ? 

A.  No,  sir.  Not  in  the  slightest.  All  the  way  through  these  contracts  you  will  observe 
that  we  have  undertaken  those  risks  which  the  law  imposes  on  the  common  carrier 
and  which  no  railroad  can  divest  itself  of  except  by  written  agreement.  The  handling 
of  these  quantities  of  oil  was  a  very  serious  matter;  there  was  a  constant  tendency 
on  the  part  of  the  railroad  companies  to  put  cars  used  in  this  trade  to  some  other 
purpose,  whenever  it  would  pay  them  better.  They  used  a  rack  car,  such  as  they 
could  carry  cattle  in  and  we  have  had  a  great  deal  of  trouble  with  these  roads  in  the  use 
of  those  cars,  because  if  they  could  get  cattle  to  haul  from  Chicago  to  St.  Louis  for 
something  more  than  they  were  getting  from  us  they  would  do  it.  I  want  to  say  what 
the  facts  are  under  the  contract  just  read.  You  will  remember  that  during  seven 
months  of  the  year  we  were  to  give  them  4,000  barrels  of  oil  per  day  or  100,000  barrels 
a  month,  and  the  smallest  of  the  shipments  in  those  months  was  108,000.  We  gave 
them  during  the  rest  of  the  time  more  oil  and  paid  them  the  contract  on  it  when  we 
could  have  shipped  by  canal  for  forty  cents  less.  On  the  first  day  of  December,  a 
competing  line  of  railway  lowered  the  rate  to  $1.05  per  barrel.  I  went  to  Mr.  Vander- 
bilt  and  told  him  that  the  rate  should  be  maintained  at  the  agreed  price  or  else  we 
would  not  have  made  the  contract  with  him.  I  said  to  Mr.  Vanderbilt  that  if  he  insisted 
in  the  fulfillment  of  the  contract  basis  and  exacted  the  payment  of  the  contract  price, 
it  would  result  in  our  being  compelled  to  close  our  refineries,  for  we  could  not  afford 
to  pay  $1.25,  when  other  people  were  only  paying  $1.05.  I  called  his  attention  to 
the  fact  that  during  the  season  of  canal  navigation  we  had  given  the  maximum  ship- 
ments of  oil,  180,000  barrels  a  month,  and  some  in  excess  of  it,  and  paid  $1.25.  I 
said,  if  you  will  reduce  these  rates  to  the  rate  made  by  the  Pennsylvania  Company, 

[333] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

in  my  judgment  thirty  days  will  not  elapse  before  they  will  be  willing  to  restore  their 
rates,  and  all  we  ask  is  to  be  put  on  a  parity  with  other  shippers.  After  a  moment's 
hesitation  he  asked  if  I  thought  he  ought  to  stand  all  of  this  twenty  cents.  I  told  him 
if  he  should  stand  any  part  of  it  he  should  stand  it  all.  I  said,  it  is  a  transportation 
fight  and  not  a  fight  of  the  manufacturers.  When  it  comes  to  competition  of  the  manu- 
facturers we  would  take  care  of  ourselves.  I  said  that  we  would  not  have  made  this 
contract  except  on  their  assurance  that  the  contract  price  of  #1.25  was  to  be  main- 
tained. He  said:  "I  will  make  your  rate  #1.05,"  and  this  was  after  we  had  done  more 
than  we  had  agreed  to  do  under  the  contract.  The  next  day  we  sold  between  50,000 
and  60,000  on  the  basis  of  $1.05  per  barrel.  Mr.  Vanderbilt  allowed  that  rate  of  pay- 
ment for  one  month  and  then  said  he  would  exact  the  contract  price,  $1.25.  I  said 
all  right,  and  we  shall  ship  just  the  amount  of  oil  we  are  compelled  to  ship  to  fulfill 
our  contract  and  then  we  shall  stop.  We  paid  him  #1.25  for  all  over  the  month 
and  then  we  did  not  run  a  barrel  of  oil  from  the  City  of  Cleveland  more  than  that 
until  the  expiration  of  this  contract  for  three  months.  That  is  the  good  that  the  contract 
worked  on  us.  You  might  consider  it  a  baby  act  to  plead  the  equities  of  the  case,  but 
we  could  not  place  our  oil  on  the  market  and  compete  with  other  refineries. 

(Fourth  contract  introduced.) 

Q.  This  is  the  only  contract  you  have  now  in  existence  whereby  you  carry  your 
freight? 

A.  Yes,  sir. 

Q.  Do  you  know  anything  of  the  suits  brought  by  Teagle  and  Company  against 
the  Lake  Shore  road  for  discriminations  in  freight  ? 

A.  Nothing  whatever. 

Q.  Have  you  had  since  the  organisation  of  your  company  any  understanding  outside 
of  these  contracts  whereby  discriminations  are  made  in  favour  of  your  company  as 
against  any  of  the  smaller  refineries  of  the  state  ? 

A.  No,  sir. 

Q.  Has  your  company  or  corporation  in  conjunction  with  the  railroads  ever  operated 
so  to  "squeeze  out"  as  they  term  it,  or  injure  any  other  refining  company  of  the  state, 
outside  of  the  Standard  Oil  Company  ? 

A.  No,  sir,  never.  I  would  like  to  enlarge  upon  that  question.  I  suppose  it  would 
be  fair  to  the  mind  of  every  member  of  this  committee  present.  A  very  large  business 
with  other  mechanical  contrivances  and  an  experience  which  grows  up  with  and  comes 
along  with  business  and  always  doing  a  very  large  business,  in  the  nature  and  order 
of  things  should  make  its  presence  felt  by  the  parties  doing  a  comparatively  small 
business.  In  1873  and  1874,  when  we  stipulated  for  those  4,000  per  day,  if  anybody 
has  followed  the  progress  of  the  Standard  Oil  Company  they  would  know  and  I  feel 
justified  in  saying  that  we  have  done  a  very  large  business,  and  aimed  to  do  it  with 

[334] 


APPENDIX,  NUMBER  XIV 

economy  and  give  the  purchaser  the  very  best  oil  manufactured,  consistent  with  a 
good  and  safe  kind  of  oil — to  manufacture  at  one  point  under  the  eye  of  one  man. 
With  an  aggregation  of  capital  and  a  business  experience,  and  hold  upon  the  channels 
of  trade  such  as  we  have,  it  is  idle  to  say  that  the  small  manufacturer  can  compete 
with  us,  and,  although  it  is  an  offensive  term,  "squeezing  out,"  yet  it  has  never  been 
done  by  the  conjunction  of  any  railroads  with  us  or  by  the  carrying  out  of  freights. 


[335] 


NUMBER   15   (See  page   106) 

THE  PITTSBURG  PLAN 
[From  the  Oil  City  Derrick,  May  17,  1872.] 

1.  Refiners  to  lease  to  the  company  for  five  years  their  superstructure  with  sufficient 
real  estate  to  carry  on  the  business  of  the  works. 

2.  That  the  rental  be  eight  per  cent,  per  annum  on  the  appraised  value  of  the  super- 
structure, and  the  company  to  assume  all  risks  and  pay  all  ordinary  taxes. 

3.  Lessors  to  pay  into  the  treasury  of  the  company  for  a  working  capital  one-half 
of  the  appraised  value  of  the  superstructure  in  cash  or  the  equivalent  in  refiner's  stock. 

4.  Said  lessors  to  receive  for  money  paid  in  as  above  the  bonds  of  the  company, 
in  amount  equal  to  cash  paid  in,  and  stocks  of  the  company  for  an  equal  amount; 
said  bonds  payable  in  five  years  or  at  the  option  of  the  company  after  one  year,  said 
bonds  to  be  denominational  coupon  bonds  to  bear  interest  at  the  rate  of  eight  per 
cent,  per  annum,  payable  semi-annually. 

5.  The  company  shall  not  pay  annually  more  than  ten  per  cent,  on  the  stock  as 
dividends  until  the  said  bonds  are  redeemed. 

6.  After  the  bonds  are  paid,  then  the  company  shall  have  the  right  and  shall  be 
obliged  to  purchase  all  said  superstructure  at  the  full  appraised  value  first  made,  and 
shall  give  in  exchange  for  the  same  stock  of  the  company  for  the  full  amount. 

7.  Each  district  shall  appoint  a  local  committee  of  three  persons  to  make  appraisals, 
and  when  any  appraisements  are  being  made,  the  chairman  of  each  local  committee 
shall  be  required  to  be  present  to  take  part  in  the  appraisement. 

There  shall  be  a  board  of  appeal  which  shall  be  composed  of  the  chairman  of  each 
local  committee.  All  presidents  of  the  company  shall  be  presidents  ex  officio  of  the 
board. 

The  committee  shall  place  a  cash  valuation  on  the  superstructure  and  shall  be 
instructed  as  to  the  manner  in  which  the  valuation  shall  be  obtained. 


[336] 


NUMBER   1 6   (Sec  page   117) 

"THE  AGENCY" 
[From  the  Oil  City  Derrick.] 

I.  There  shall  be  established,  under  the  auspices  of  the  Council  of  the  Petroleum 
Producers'  Association  of  Pennsylvania,  an  organisation  under  sanction  of  the  laws 
of  Pennsylvania,  which  shall  be  known  as  "THE  PETROLEUM  PRODUCERS' 
AGENCY." 

II.  The  capital  stock  shall  be  not  less  than  one  million  dollars,  and  shall  be  divided 
into  shares  of  one  hundred  dollars  each,  which  shall  be  subscribed  only  by  members 
of  the  Petroleum  Producers'  Association,  or  by  such  other  persons  as  may  be  approved 
by  the  Council. 

III.  No  transfers  of  the  shares  of  the  capital  stock  shall  be  made  on  the  books 
of  the  Agency,  except  upon  such  conditions  as  the  directors  may  prescribe,  subject 
to  the  approval  of  the  Council. 

IV.  The  business  of  the  Agency  shall  be  managed  by  a  board  of  thirteen  directors, 
who  shall  be  elected  annually  by  the  stockholders. 

V.  There  shall  be  an  advisory  board  to  consist  of  one  member  elected  by  each  local 
association  and  approved  by  the  Council.  The  members  of  the  advisory  board  shall 
be  admitted  to  the  meetings  of  the  board  of  directors  and  shall  be  entitled  to  all  the 
privileges  of  directors,  except  that  of  voting.  Any  member  of  the  advisory  board  may 
be  removed  for  any  abuse  of  his  trust,  or  for  official  misconduct,  by  a  vote  of  three- 
ourths  of  the  Council  at  a  regular  meeting. 

VI.  The  local  associations  may  appoint  committees  to  solicit  and  receive  subscrip- 
ions  to  the  capital  stock;  they  may  also  appoint  responsible  trustees  to  receive  payments 
>n  account  of  such  subscriptions,  to  whom  the  subscribers  shall  pay  at  least  ten  per 
ent.  upon  their  subscriptions  at  the  time  of  subscribing.  The  committees  of  the  local 
ssociations  shall  advise  the  president  of  the  Council,  from  day  to  day,  of  the  amount 
f  subscriptions  received  by  them,  and  whenever  the  sum  of  at  least  one  million  dollars 
hall  have  been  subscribed  in  good  faith,  and  approved  by  the  Council,  and  the  organi- 
ation  of  the  Agency  legally  completed,  subscribers  shall  be  notified  to  hold  an  election 
f  directors.  The  directors  shall,  as  soon  as  practicable  after  their  election,  proceed 
)  elect  a  president,  secretary  and  treasurer.    The  trustees,  appointed  by  the  local 

[337] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

associations  to  receive  subscriptions,  shall  thereupon  be  required  to  pay  over  to  the 
Agency  the  amounts  received  by  them  on  account  of  subscriptions  to  the  capital  stock. 
The  Agency  shall  not  be  responsible  for  any  subscriptions  paid  to  the  trustees  ap- 
pointed by  the  local  associations  until  the  same  shall  have  been  paid  over  to  the  Agency 
or  its  authorised  representatives. 

Subscriptions  to  the  capital  stock  may  be  received,  payable  in  oil  at  five  dollars 
per  barrel,  delivered  on  the  cars  or  in  the  tanks  of  the  Agency  at  any  sub-agency  on 
the  line  of  the  railways;  provided,  however,  that  no  certificate  of  stock  shall  be  issued 
in  any  case  in  which  payment  is  made  in  pipe-line  receipts  until  the  oil  shall  have 
actually  been  received  upon  the  order  by  the  Agency  or  its  agents.  But  a  special 
guaranty  of  the  order  shall  be  required  from  the  subscriber  with  an  agreement  that 
the  stock  shall  be  retained  as  security  for  the  delivery  of  the  oil  on  demand,  and  the 
demand  shall  be  made  within  thirty  days  after  the  order  for  the  oil  is  received  by  the 
Agency. 

VII.  Members  of  the  Petroleum  Producers'  Association  shall  sell  their  oil  only  to 
the  Agency.  The  Agency  shall  purchase  all  the  oil  offered  by  members  of  the  Associa- 
tion and  shall  pay  therefor  at  least  five  dollars  per  barrel  for  oil  of  standard  grade, 
and  for  the  heavy  oil  of  the  fifth  district.  Payment  for  oil  purchased  shall  be  made 
as  follows :  If  the  market  will  take  the  entire  supply  as  fast  as  offered,  the  full  market 
price  shall  be  paid  in  cash  on  delivery;  but  if  the  board  of  directors,  or  the  Council,  shall 
determine  that  the  oil  daily  offered  to  the  Agency  is  in  excess  of  the  demand,  the  Agency 
shall  pay  three  dollars  in  cash  and  give  the  seller  a  certificate  entitling  him  to  the  net 
proceeds  of  the  oil  when  sold,  less  the  amount  advanced  thereon. 

VIII.  The  Agency  shall  sell  no  oil  for  a  less  price  than  five  dollars  in  cash,  on  delivery 
per  barrel  without  the  consent  of  the  Council  of  the  Petroleum  Producers'  Association. 

IX.  To  the  redemption  of  the  certificates,  on  and  after  the  tenth  of  the  month 
succeeding  that  in  which  they  were  issued,  shall  be  applied  the  proceeds  of  all  the 
oil  sold  and  delivered  during  that  month,  less  the  amount  advanced  and  the  amount 
required  to  tank  the  surplus  oil.  For  the  unpaid  balance  of  the  certificate  the  holder 
shall,  upon  the  surrender  of  the  same,  be  entitled  to  a  tank  receipt  representing 
his  interest  in  the  amount  of  surplus  oil  in  store  and  tankage. 

X.  The  Agency  shall  be  entitled  to  receive  for  buying  and  selling  the  oil  such  com- 
missions per  barrel  as  the  Council  may  allow,  applicable  first  to  the  payment  of 
expenses,  second  to  the  payment  of  dividends  on  the  capital  stock,  which  shall  be 
six  per  cent,  semi-annually,  free  of  taxes. 

XI.  All  the  net  proceeds  of  surplus  oil  sold  shall  be  applied  specifically  to  the 
redemption  of  the  tank  receipts  at  their  value,  the  surrender  of  which  shall  be  at  the 
option  of  the  holder. 

XII.  The  Agency  shall  establish  sub-agencies  at  such  points  within  the  oil-producing 
district  for  the  receipt,  storage,  and  shipment  of  oil  as  may  be  necessary  to  facilitate 

[338] 


APPENDIX,  NUMBER  XVI 

the  convenient  and  economical  transaction  of  the  business  of  the  region,  subject  to 
the  approval  of  the  Council. 

XIII.  The  Agency  shall  provide  all  storage  necessary  to  hold  the  oil  on  sale  and 
the  surplus  oil  in  store. 

XIV.  The  price  on  the  cars  of  oil  of  the  standard  grade  shall  be  uniform  at  all 
the  sub-agencies  on  the  line  of  the  railways  within  the  oil-producing  district,  provided 
it  be  practicable  to  so  arrange  with  the  railroads. 

XV.  A  barrel  shall  be  uniformly  forty-two  gallons. 

XVI.  Whenever  the  production  of  petroleum  shall  be  permanently  in  excess  of  the 
demand  the  Council  of  the  Petroleum  Producers'  Association  shall  determine  at 
what  time  the  production  shall  be  restrained  and  shall  take  such  measures  as  may 
be  practicable,  necessary,  and  lawful  to  prevent  the  drilling  of  oil  wells,  but  it  shall 
confine  its  orders,  so  far  as  practicable  to  preventing  the  starting  of  new  wells,  allowing 
those  already  in  process  of  drilling  to  be  completed. 

XVII.  Whenever  in  the  opinion  of  the  board  of  directors  it  may  be  advisable  they 
may,  subject  to  the  approval  of  the  Council,  provide  such  refining  capacity  as  may 
be  required  to  maintain  the  highest  price  for  crude  petroleum  consistent  with  the 
consumptive  demand. 

XVIII.  The  Agency  shall  not  at  any  time  sell  to,  or  contract  with,  or  make  any 
arrangement  whatever,  with  any  individual,  organisation,  combination,  or  association, 
by  which  they  may  have  a  monopoly,  inside  rate,  advantage  or  preference  over,  or  to 
the  prejudice  of,  any  present  or  future  competitor  for  the  purchase  of  the  crude  oil 
coming  into,  or  passing  through  its  hands;  provided,  that  nothing  in  this  section  shall 
be  so  construed  as  to  prevent  the  Agency,  with  the  sanction  of  the  Council,  from 
making  such  temporary  discrimination  as  may  be  necessary  for  the  purpose  of  pro- 
tecting or  promoting  the  interests  of  producers  by  securing  higher  prices  for  crude 
oil,  increased  consumption  of  refined  oil,  or  decreased  margins  between  the  price  of 
crude  and  refined  oil. 

XIX.  The  Agency,  with  the  approval  of  the  Council,  may  take  such  measures 
as  may  be  expedient  to  increase  the  consumption  of  petroleum  by  securing  its  applica- 
tion to  new  uses. 

XX.  The  Agency  shall  publish  daily  a  correct  statement  showing  the  amount  of 
oil  purchased,  the  oil  sold,  and  oil  placed  in  store  during  the  day;  also  showing  the 
points  at  which  the  same  was  done  and  the  amounts  at  the  time  in  store  at  the  various 
sub-agencies;  also  the  destination  of  the  oil  sold. 

XXI.  The  Agency  shall  publish  tri-monthly,  full  and  complete  reports  of  all  its 
transactions  and  showing  its  condition  at  the  date  of  the  report;  the  correctness  of 
the  report  shall  be  verified  in  such  manner  as  may  be  prescribed  by  the  Council. 

XXII.  A  committee  may  be  appointed  by  the  board  of  directors,  or  by  the  Council 
Df  the  Petroleum  Producers'  Association,  at  any  meeting,  for  the  purpose  of  investigating 

[339] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

the  condition  and  management  of  the  affairs  of  the  Agency;  and  it  shall  be  the  righ 
and  duty  of  such  committee,  duly  appointed,  to  thoroughly  investigate  everything 
affecting  the  interest  of  the  Agency,  to  examine  its  books,  accounts  and  vouchers 
its  safes,  vaults  and  tanks;  and  to  make  a  true  and  faithful  report  of  the  condition  and 
management  of  the  affairs  of  the  Agency  as  they  may  be  found,  which  report  shal 
be  published  at  the  expense  of  the  organisation  which  appointed  the  committee.  I 
shall  be  the  duty  of  the  Council  to  see  that  such  committee  is  appointed  and  sue! 
examination  and  report  made  and  published  at  least  once  in  every  year. 

XXIII.  The  Agency  shall  establish  a  bureau  of  statistics  and  information,  which 
shall  carefully  collect  and  publish  facts,  relating  to  the  business  of  producing,  refining, 
marketing  and  the  consumption  of  oil.  The  rooms  of  the  bureau  shall  at  all  times 
be  open  to  the  members  of  the  Petroleum  Producers'  Association,  and  the  Agency 
shall  hold  itself  open  for  daily  communications  by  telegraph  with  local  associations. 


[340] 


NUMBER   17  (See  page  123) 

CONTRACT    BETWEEN    PETROLEUM    PRODUCERS'    ASSOCIATION 
AND    PETROLEUM    REFINERS'   ASSOCIATION 

[From  the  Oil  City  Derrick.] 

The  contract  between  the  producers  and  refiners  read  as  follows : 

Whereas,  The  necessities  of  trade  call  for  co-operation  between  the  producers  and 
refiners  of  oil,  for  purposes  of  mutual  protection : 

Therefore,  We,  the  undersigned,  representing  the  Petroleum  Producers'  Associa- 
tion and  the  Petroleum  Refiners'  Association,  hereby  enter  into  the  following  articles 
of  agreement,  which  stipulate  as  follows : 

First. — Each  of  the  two  associations  hereby  agrees  to  appoint  a  representative  com- 
mittee, which  committee  shall  meet  together  weekly,  or  as  often  as  may  be  necessary, 
and  at  such  places  as  they  may  determine. 

It  shall  be  the  duty  of  these  committees  (so  far  as  in  their  power  lies)  to  see  that 
the  provisions  of  this  agreement  are  executed  in  good  faith,  and  to  discharge  such 
duties  as  are  devolved  upon  them  by  this  agreement,  and  in  general  (within  the  limita- 
tion of  their  authority)  to  act  for  the  mutual  advantage  of  the  trade,  whose  interests 
it  is  the  purpose  of  this  agreement  to  secure. 

Second. — The  Producers'  Association  shall  appoint  a  comptroller,  who  shall  have 

the  right  to  examine  the  books  of  the  Refiners'  Association,  and  its  daily  reports  so 

Ifar  as  they  relate  to  the  purchase,  sale,  and  shipments  of  crude  and  refined  oil,  and 

Jwho,  together  with  the  auditor  of  the  Refiners'  Association,  shall  make  joint  reports 

[daily  to  both  associations. 

The  Refiners'  Association  shall  appoint  a  comptroller,  who  shall  have  the  right 
[to  examine  the  books  of  the  Producers'  Association  and  its  agencies,  and  their  daily 
ireports,  so  far  as  they  relate  to  the  purchase,  sale,  and  shipments  of  crude  and  refined 
toil,  and  who,  together  with  the  secretary  of  the  Producers'  Association,  shall  make 
joint  reports  daily  to  both  associations  of  all  sales  and  shipments. 

Third. — Each  association  agrees  that  it  will  keep  accurate  books  of  account,  which 
shall  show  all  purchases,  sales,  and  shipments  of  crude  and  refined  oil,  which  shall 
also  be  open  at  all  reasonable  hours  to  the  inspection  and  examination  of  the  authorised 
agents  of  e?ch  association,  as  hereinbefore  provided. 

[341] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

Fourth. — The  Refiners'  Association  agrees  to  admit  all  existing  refiners  to  member  j 
ship,  and  to  a  participation  in  the  future  benefits  of  the  association  on  equal  term 
with  present  members,  and  the  Producers'  Association  agrees  to  allow  all  producer: 
to  join  its  association  on  the  same  terms  with  the  present  members. 

Fifth. — The  Producers'  Association  agrees  to  sell  (through  its  regular  appointee: 
agencies)  crude  oil  exclusively  to  the  Refiners'  Association  and  its  members,  and  thi! 
Refiners'  Association  and  its  members  agree  to  purchase  crude  oil  exclusively  of  tht 
Producers'  Association  or  its  appointed  agents. 

Sixth. — The  Producers'  Association  agrees  that  all  producers  enjoying  the  benefit! 
of  this  contract  shall  be  required  to  bind  themselves  to  sell  their  oil  exclusively  through 
the  Producers'  Association. 

Seventh. — The  Refiners'  Association  and  its  members  agree  that  they  will  not  unti 
after  sixty  (60)  days  from  the  date  of  this  contract  sell  any  portion  of  the  crude  01 
refined  oil  now  held  by  them,  except  so  far  as  they  shall  have  previously  purchased 
the  equivalent  of  crude  oil  to  take  the  place  of  the  oil  so  sold. 

They  further  agree  to  buy  from  the  Producers'  Association  daily  such  quantities  oi 
crude  oil  as  the  markets  of  the  world  may  take  of  them,  the  same  to  be  determinec 
from  time  to  time  by  the  representative  committees  herein  provided  for. 

Eighth. — The  price  of  crude  oil  so  purchased  and  sold  to  be  conditionally  five; 
dollars  per  barrel  of  forty-two  gallons  each,  at  "common  points,"  payment  to  b< 
made  as  follows: 

When  refined  oil  is  sold  in  New  York  at  twenty-six  cents  per  gallon,  no  additiona  j 
amount  is  to  be  paid;  but  for  every  one  cent  per  gallon  of  advance  in  the  averagtj 
price  of  sales  of  refined  oil  in  New  York,  twenty-five  cents  per  barrel  shall  be  added 
to  the  price  of  so  much  crude  oil  as  shall  be  the  equivalent  of  refined  oil  sold  at  suchl 
advance  until  the  price  reaches  five  dollars  per  barrel.  A  proportionate  addition  to  the 
average  price  of  crude  oil  shall  be  paid  for  each  fraction  of  one  cent  per  gallonj 
increase  in  the  average  price  of  sales  of  refined  oil  at  New  York,  by  members  ol 
the  Refiners'  Association. 

The  price  of  refined  oil  in  New  York  and  of  crude  oil  at  common  points  to  be 
adjusted  by  the  representative  committee  herein  provided  to  be  appointed. 

Ninth. — The  representative  committees  may  at  any  time,  when  it  may  be  necessary; 
to  do  so,  reduce  the  prices  of  crude  and  refined  oils  below  the  minimum  or  advance! 
them  above  the  maximum  prices  above  named,  the  increase  and  reduction  in  price 
and  the  cash  payments  on  crude  oil  to  be  determined  by  said  committees. 

Tenth. — Settlements  to  be  made  to  the  end  of  each  calendar  month  and  balances 
to  be  paid  not  later  than  the  fifth  of  the  succeeding  month. 

Eleventh. — The  profits  on  all  crude  oil  sold  for  export  by  members  of  the  Refiners' 
Association  shall  be  credited  to  the  Producers'  Association  in  the  next  succeeding 
regular  monthly  settlement  after  delivery  of  said  oil. 

[342] 


APPENDIX,  NUMBER  XVII 

Twelfth. — Either  association  may  discontinue  this  agreement  at  any  time  by  giving 
to  the  president  of  the  other  association  ten  (10)  days'  notice  in  writing  of  its  purpose 
to  do  so. 

Thirteenth. — This  agreement  to  remain  in  full  force  and  effect  for  and  during  the 
term  of  five  years  from  this  date,  unless  sooner  terminated  in  the  manner  provided 
in  section  twelve  (12)  of  this  agreement. 

Fourteenth. — Amendments  and  alterations  may  be  made  at  any  time  by  the  repre- 
sentative committees,  subject  to  the  approval  of  the  respective  associations. 

In  testimony  whereof,  the  Petroleum  Producers'  Association,  by  its  executive  com- 
mittee, and  the  Petroleum  Refiners'  Association,  by  its  president  and  secretary,  have 
hereunto  set  their  hands  this  nineteenth  day  of  December,  a.d.  1872,  in  the  City 
of  New  York. 

Petroleum  Producers'  Association,  by  C.  V.  Culver,  A.  H.  Bronson,  Samuel 
Q.  Brown,  William  Parker,  B.  B.  Campbell,  Executive  Committee. 

Petroleum  Refiners'  Association,  by  John  D.  Rockefeller,  President. 


[343] 


NUMBER   1 8   (See  page   132) 


TESTIMONY  OF  GEORGE  R.  BLANCHARD  ON  REBATES  GRANTED 
BY  THE   ERIE  RAILROAD 

[Report  of  the  Special  Committee  on  Railroads,  New  York  Assembly,  1879.  Volume 
III,  pages  3393-3395] 

October  1,  1872,  when  I  first  became  general  freight  agent  of  the  Erie  Railroad, 
no  oil  was  produced  in  the  Bradford  District,  and  all  petroleum  then  transported 
by  the  Erie  Railway  eastward  came  from  the  Atlantic  and  Great  Western  Rail- 
road. At  that  time,  Adnah  Neyhart,  of  Tidioute,  Pennsylvania,  represented  by 
W.  T.  Scheide,  afterwards  by  H.  C.  Ohlen  at  New  York,  shipped  small  quanti- 
ties of  refined  oil,  for  which  he  received  a  rebate  of  over  $7,000  on  his  shipments 
for  the  prior  month,  to  wit,  September,  1872.  ...  I  looked  for  the  reasons,  and 
found  the  agreement  next  prior  to  that  time  as  to  shipments  and  rates  was  the 
one  already  in  evidence  between  producers,  shippers,  refiners  and  railroad  companies, 
dated  March  25,  1872;  I  asked  why  that  contract  was  not  observed,  and  was  then 
convinced  in  reply  that  the  agreement  of  March  25  lasted  less  than  two  weeks,  and 
that  at  that  early  date  the  Empire  Line  was  receiving  a  large  drawback  or  commission 
from  the  Pennsylvania  Railroad,  which  was  either  being  shared  with  its  shippers  or 
an  additional  amount  was  being  allowed  to  them,  besides  that  which  the  Empire  Line 
itself  received  from  the  Pennsylvania  system;  and  as  the  Empire  Line  also  owned  the 
Union  Pipe  Line,  its  shippers  had  advantages  which  our  company  and  its  shippers  did 
not  even  jointly  possess.  At  the  close  of  that  calendar  year  (1872),  the  entire  petroleum 
traffic  for  the  five  months  of  the  administration  of  President  Watson,  the  former  presi- 
dent of  the  South  Improvement  Company,  to  January  1,  1873,  was  but  265,853 
barrels,  or  but  about  53,000  barrels  per  month;  while  the  Pennsylvania  Railroad 
was  carrying  about  six  times  as  much,  or  300,000  barrels  per  month,  and  the  New 
York  Central  was  carrying  the  entire  refined  oil  sent  from  Cleveland  to  New  York. 
The  representations  then  made  to  me  also  convinced  the  Atlantic  and  Great  Western 
Company  as  to  what  our  rivals  were  doing,  and  that  railway  company  and  our  own 
decided  to  continue  to  pay  the  twenty-four  cents  per  barrel  drawback  then  being 
paid  on  the  rate  of  $1.35  provided  by  this  producers'  agreement  of  March  25,  1872. 

It  is  therefore  clear  that  one  of  the  largest  of  the  shippers,  who  signed  that  March 
agreement,  did  not  feel  that  it  bound  him  to  pay  the  rates  he  had  agreed  to  pay,  and 

[344] 


APPENDIX,  NUMBER  XVIII 
he  gave  convincing  reasons  to  believe  that  others,  signers  and  parties  to  that  agreement, 
did  not  pay  them,  and  possessed  equal  or  greater  advantages  byway  of  rival  routes. 
Early  in  1873  Mr.  Scheide  came  to  our  line  with  Mr.  Neyhart's  crude  business,  under 
the  circumstances  Mr.  Scheide  has  stated,  but  being  yet  without  any  shippers  of 
refined  oil,  and  believing  that  the  Empire  Line  would  pay  a  rebate  on  refined,  as  I 
now  know  from  Mr.  Scheide's  testimony,  they  had  paid  Mr.  Scheide  on  crude,  I  opened 
negotiations  to  increase  our  traffic,  which  resulted  in  an  agreement,  with  the  con- 
currence of  the  Atlantic  and  Great  Western,  as  follows: 

Erie  Railway  Company, 
Office  of  Second  Vice-President. 

New  York,  March  29,  1873. 

MEMORANDUM 

Between  John  D.  Archbold,  Mr.  Bennett,  and  Mr.  Porter,  and  Mr.  Osborn,  and 
self.  Rate  for  March,  1873,  to  be  132!  from  Union.  Rate  thereafter  to  be  125  from 
same  point  as  the  maximum  for  1873.  If  the  common  point  rate  is  made  from 
Titusville  at  any  time  in  1873,  on  bona  fide  shipments,  Erie  and  Atlantic  and  Great 
Western  will  make  same  rate  from  same  date.  With  this  rate  the  refiners  agree  to  give 
us  their  entire  product  to  New  York  for  the  year,  and  the  preference  always  at  same 
rate  as  actual  shipment  by  other  lines. 

(Signed)  John  D.  Archbold. 
G.  R.  Blanchard. 

This  Mr.  Bennett  was  also  one  of  the  signers  to  the  agreement  of  March  25,  as  a 
refiner,  and  from  these  gentlemen  I  also  learned  at  that  time  that  this  producers'  agree- 
ment was  exploded  by  the  action  of  the  Producers'  Union  before  that  time. 

Notwithstanding  this  agreement  of  March  29,  1873,  with  its  reduced  rates,  its 
signers  left  us  in  November,  1873,  and  gave  the  Empire  Line  their  entire  shipments; 
and  we  were  then  left  with  but  one  small  shipper  of  refined  oil,  Mr.  G.  Heye,  whose 
consignments  were  small,  and  to  retain  even  this  small  business,  against  similar  solici- 
tations by  our  rivals  we  were  compelled  to  make  his  rate  $1.10  in  November,  1873, 
instead  of  $1.50,  as  provided  by  this  producers'  agreement. 

These  facts  effectually  refute  the  testimony  of  Mr.  Patterson  that  the  agreement 
of  March  25  continued  for  two  years,  or  any  other  period  beyond  three  weeks,  at 
the  rates  it  stipulated,  and  show  that  at  least  two  of  its  signers  did  not  *feel  bound 
to  pay  the  rates  it  named,  and  that  they  and  others  by  other  lines  endeavoured  im- 
mediately after  it  was  signed  to  obtain,  and  did  secure  reduced  rates,  as  usual  before  its 
execution  and  peddled  their  oil  among  different  railroads  wherever  they  could  secure 
an  advantage,  however  small,  over  each  other  or  the  railroads. 

[345] 


NUMBER   19   (See  page   133) 


TESTIMONY  OF  W.  T.  SCHEIDE 

[Report  of  the  Special  Committee  on  Railroads,  New  York  Assembly,  1879.  Volume 
III,  pages  2774-2777.] 

Q.  Why  were  you  shipping  over  the  Pennsylvania  road  and  not  over  the  Erie  ? 

A.  For  the  reason  that  the  Pennsylvania  was  most  eligibly  situated  for  our  purposes. 

Q.  How  did  you  come,  then,  to  ship  over  the  Erie  at  all  ? 

A .  We  came  to  ship  over  the  Erie  because  of  what  we  considered  very  bad  treat- 
ment on  the  part  of  the  Pennsylvania  Railroad. 

Q.  What  was  that  bad  treatment  that  you  received  at  the  hands  of  the  Pennsylvania 
road  ? 

A.  It  consisted,  principally,  in  a  discrimination  against  us  in  furnishing  us  with 
cars. 

Q.  They  refused  you  transportation  ? 

A.  Yes,  sir. 

Q.  Were  they  refusing  you  transportation  in  the  interest  of  the  combination  ? 

A.  In  the  interest  of  a  peculiar  idea  that  they  had,  that  all  shippers  should  be  placed 
upon  the  same  basis. 

Q.  And  in  consequence  of  that  peculiar  idea,  they  gave  to  other  shippers  trans- 
portation and  did  not  give  it  to  you  ? 

A.  Yes,  sir. 

Q.  And  that  was  the  practical  way  in  which  that  corporation  carried  out  that  idea  ? 

A.  Yes,  sir;  you  will  allow  me  to  explain,  please  ? 

Q.  Yes;  go  on. 

A.  The  oil  business  differs  from  other  business  in  this,  that  it  is  a  daily  crop;  there 
is  a  certain  amount  of  oil  produced  that  has  to  be  shipped  every  day;  the  consumption, 
however,  is  not  equal  to  the  daily  production  of  our  trade;  the  consumption  varies 
and  the  demand  varies;  the  consequence  is  that  there  are  seasons  of  the  year  when  a 
man  engaged  in  shipping  oil  ships  oil  really  at  a  loss  because  there  is  no  demand  for  it, 
and  there  are  other  seasons  when  there  is  a  large  profit;  now  the  Pennsylvania  Railroad 
always  insisted  upon  having  a  large  number  of  shippers;  this  large  number  of  shippers 

[346] 


APPENDIX,  NUMBER  XIX 

would  ship  only  when  there  was  profit,  and  when  there  was  no  profit  somebody  else 
had  to  ship;  we  had  been  their  shipper  for  a  number  of  years. 

Q.  When  you  speak  of  their  shipper— their  leading  shipper,  do  you  mean  ? 

A.  Yes,  sir;  we  did  their  business  between  Philadelphia  and  Baltimore  and  New 
York. 

Q.  Were  you  their  evener,  so  to  speak  ? 

A.  We  did  not  have  any  eveners  in  those  days. 

Q.  Did  you  practically  stand  in  the  position  of  an  evener  ? 

A .  No,  sir;  we  were  simply  their  shipper  of  crude  oil. 

Q.  When  you  speak  of  their  "shipper,"  in  the  singular,  do  you  mean  that  you  were 
their  sole  shipper,  as  you  subsequently  became  on  the  Erie  ? 

A.  I  mean  we  had  better  rates  of  freight  than  anybody  else  could  have  obtained 
over  the  Pennsylvania  Railroad  at  that  time. 

Q.  And  therefore  monopolised  the  business;  go  on  ? 

A.  And  the  consequence  is  that  in  consequence  of  this  change  in  the  demand  that 
when  there  comes  a  season  that  there  is  a  little  money  in  it,  the  Pennsylvania  Railroad 
would  encourage  these  numerous  small  shippers  who  would  come  in  and  they  would 
pro-rate  cars  with  them;  they  would  only  allow  us  to  put  in  a  requisition  for  a  certain 
number  of  cars  and  they  would  allow  anybody  else,  an  entire  stranger,  a  man  who 
never  shipped  any  before,  to  put  in  an  equal  requisition,  and  they  would  pro-rate  with 
him,  and  the  consequence  was  in  the  paying  business  we  were  out  and  in  the  unpay- 
ing  business  we  were  in. 

Q.  And  you  left  it  ? 

A.  Yes,  sir. 

Q.  Because  you  could  not  get  rates  better  than  other  people  ? 

A.  No,  sir;  because  we  could  not  stand  it;  because  we  were  losing  money. 

Q.  On  the  same  basis  that  other  people  were  ? 

A.  No,  sir;  other  people  were  not  shipping  except  when  there  was  a  profit. 

Q.  Why  did  you  ship  when  there  was  not  a  profit  ? 

A.  Because  that  was  our  business;  we  were  shippers  of  petroleum. 

By  the  Chairman. 

Q.  I  don't  understand  why  you  were  obliged  to  ship  at  a  loss  ? 

A.  That  is  the  reason  why  we  left  the  Pennsylvania  Railroad. 

Q.  I  don't  understand  why  you  were  obliged  to  ship  at  a  loss  ? 

A.  We  were  in  the  petroleum  business  and  shippers  of  petroleum,  and  we  had 
contracts;  in  order  to  keep  the  cars  running  it  was  necessary  for  us  to  make  a  contract 
for  one,  two,  three,  five,  or  six  months  ahead. 

By  Mr.  Sterne. 

Q.  Isn't  it  true  that  upon  the  basis  of  your  having  better  rates  than  anybody  else, 
you  proceeded  to  make  contracts  to  extend  your  business  ? 

[347] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

A.  Yes,  sir. 

Q.  With  the  Pennsylvania  road  ? 

A.  Yes,  sir. 

Q.  And  that  the  moment  that  you  were  placed  in  the  position  of  having 

A.  No  transportation. 

Q.  No  transportation  equal  to  your  expectations,  with  your  special  rates  ? 

A.  I  had  to  buy  oil  in  New  York. 

Q.  That  was  the  real  fact  ? 

A.  Yes,  sir. 

Q.  The  business  was  based  upon  the  rate  of  transportation  ? 

By  the  Chairman. 

Q.  Why  did  you  have  to  buy  oil  in  New  York  ? 

A .  To  fill  my  contract. 

Mr.  Sterne. — He  had  made  his  contract  upon  the  basis  of  his  special  rate. 

The  Witness. — And  there  was  a  certain  supply  of  transportation  which  was  given 
to  me. 

By  Mr.  Sterne. 

Q.  Practically  an  exclusive  supply  of  transportation  you  had  at  one  time  over  the 
Pennsylvania  road,  hadn't  you  ? 

A.  Yes,  sir. 

Q.  And  when  they  changed  their  policy  in  that  respect  and  gave  other  people  trans- 
portation, you  could  not  fill  the  orders  upon  the  basis  of  which  you  had  made  your 
contracts  ? 

A.  You  will  excuse  me;  this  would  seem  as  though  this  was  a  sudden  arrange- 
ment; it  was  not;  it  lasted  three  or  four  years. 

Q.  You  had  reason  to  suppose  that  it  would  last,  had  you  not  ? 

A.  This  policy  of  theirs  ? 

Q.  This  policy. 

A.  Yes,  sir. 

Q.  That  drove  you  on  the  Erie  ? 

A.  Yes,  sir. 


[348] 


NUMBER   20   (See  page   133) 

STATEMENT   OF   AMOUNTS    PAID    FOR   OVERCHARGES   AND   RE- 
BATES  ON   OIL   DURING   THE   YEAR   1873  BY  THE  NEW 
YORK,   LAKE   ERIE  AND  WESTERN   RAILROAD 

[Report  of  the  Special  Committee  on  Railroads,  New  York  Assembly,  1879.  Volume 
V,  page  275  of  Exhibits.] 

Nami.  Erie  pro. 

A.  Neyhart £188,127.78 

Gust.  Heye. 7,235.31 

J.  J.  Vandergrift 929.1 1 

Durant  and  Company H5-95 

Dutilk  and  Company 815.95 

S.  D.  Karns 7,089.69 

Standard  Oil  Company 469.1 1 

H.  B.  Everest 6.66 

Lyman  and  Williams  1344 

J.  H.  Willever 32.98 

L.  Van  Duzer 3.50 

H.  Roach  and  Son .29 

L.  Y.  Wiggins  and  Brother 24.1 1 

P.  A.  Stebbins,  Jr 4.53 

C.  P.  Prince  and  Company 2.69 

E.  L.  Houghton  and  Company 45*24 

McKirgan  and  Company 2.70 

Marks  and  Bean 45^2 

McManagle  and  Rogers 18.27 

Theodore  Merritt 4-5^ 

W.  F.  Smith 3-86 

Vacuum  Oil  Company 8.80 

Vandusen  Brothers 38.88 

Woodbury,  Morse  and  Company 5-4° 

Ward,  Leonard  and  Company 88.06 

Young  and  Borden  7-97 

Total £205,1 70.66 


[349] 


NUMBER  21    (See  page   135) 


AGREEMENT   OF    1874    BETWEEN   THE    ERIE    RAILROAD   SYSTEM 
AND   THE   STANDARD   OIL   COMPANY 

[Report  of  the  Special  Committee  on  Railroads,  New  York  Assembly,  1879.  Volume 
III,  pages  3398-3402.] 

Agreement  concluded  this  seventeenth  day  of  April,  a.d.  1874,  by  and  between 
the  Erie  Railway  Company  and  the  Atlantic  and  Great  Western  Railroad  Company, 
parties  of  the  first  part,  and  the  Standard  Oil  Company,  of  Cleveland,  Ohio,  party  of 
the  second  part,  witnesseth: 

First. — The  parties  of  the  first  part  (Erie  Railway  Company  and  the  Atlantic  and 
Great  Western  Railroad  Company)  agree  to  furnish  a  sufficient  number  of  good  and 
suitable  cars  for  the  purpose  of  transporting  petroleum  and  its  products  from  the 
refineries  now  owned  by  the  party  of  the  second  part  (Standard  Oil  Company),  at 
Cleveland,  Ohio,  and  Oil  City,  Pennsylvania,  and  any  others  they  may  hereafter  con- 
trol or  own,  to  Weehawken  Oil  Yards,  in  New  Jersey. 

Second. — The  parties  of  the  first  part  agree  to  transport  said  products  of  said  re- 
fineries, and  deliver  the  same  in  cars  (if  destined  for  the  New  York  market)  at  and 
upon  the  side  tracks  connected  with  said  Weehawken  Oil  Yards,  in  good  order  and 
condition,  except  as  provided  for  in  Article  Four  (4),  and  do  all  switching  of  cars  at 
said  oil  yards  necessary  to  the  prompt  and  rapid  discharge  and  handling  of  cars  em- 
ployed in  said  business.  They  also  agree  to  haul  said  cars  (whenever  practicable)  in 
full  trains  over  their  respective  roads,  with  promptness  and  uniformity  of  movement, 
and  accept  compensation  therefor  as  hereinafter  provided. 

Third. — Rates  of  freight  on  all  said  products  to  be  made  from  time  to  time  between 
J.  H.  Devereux,  president  of  the  Atlantic  and  Great  Western  Railroad  Company, 
and  the  Standard  Oil  Company;  the  same  to  be  to  the  satisfaction  of  the  said  J.  H. 
Devereux,  president;  to  be,  however,  no  higher  than  is  paid  by  the  competitors  of 
the  said  Standard  Oil  Company,  from  competing  Western  refineries  to  New  York 
by  all  rail  lines — each  of  said  railway  companies  accepting  its  pro  rata  proportion 
of  the  through  rate  thus  made. 

Fourth. — The  party  of  the  second  part  agrees  not  to  ship  more  than  .fifty  (50)  per 
cent,  of  the  product  of  its  said  refineries  by  any  other  line  or  lines  Eastward,  to  be 

[350] 


APPENDIX,  NUMBER  XXI 

shown  by  monthly  statements  verified  by  its  president  and  secretary.  It  also  agrees 
to  assume  all  risks  and  losses  of  its  property  by  fire  when  in  the  charge  or  custody 
of  the  parties  of  the  first  part,  whether  said  property  is  being  moved  in  trains  or  stored, 
or  lying  at  any  station  between  place  of  shipment  and  destination  (both  included). 
It  further  agrees  to  assume  all  losses  from  natural  leakage  or  breakage,  except  the 
same  is  caused  by  collisions  or  the  wrecking  of  cars  by  unavoidable  accidents.  It 
also  agrees,  at  its  own  cost,  to  safely  load  at  places  of  shipment  all  of  said  products, 
and  unload  the  same  when  delivered  at  the  said  Weehawken  Oil  Yards,  and  furnish 
said  products  for  shipment  with  as  great  regularity  as  possible. 

Fifth. — In  the  event  of  unavoidable  detention,  occasioned  by  the  elements,  or  by 
strikes  of  employees  of  the  parties  of  the  first  part,  or  either  of  them,  whereby  said 
first  parties  are  unable  (for  the  time  being)  to  fulfill  their  covenants  under  this  agree- 
ment, then  it  shall  be  the  duty  of  said  first  parties  to  immediately  notify  the  second 
party  of  such  casualty  or  strikes,  and  such  casualty  or  strike  shall  be  considered  good 
and  sufficient  cause  for  delay  in  the  execution  (for  the  time  being)  of  the  provisions 
of  this  agreement.  And  said  first  parties,  and  each  of  them,  shall  be  saved  from  all 
obligation  for  the  fulfillment  of  this  agreement  during  the  period  of  such  detention, 
anything  in  this  contract  to  the  contrary  notwithstanding.  It  shall  be  the  duty  of  said 
first  parties  to  proceed  forthwith  to  put  themselves  in  position  to  resume  their  obliga- 
tions under  this  agreement,  giving  notice  at  the  earliest  possible  moment  to  the  second 
party  of  their  ability  to  resume. 

Sixth. — The  Erie  Railway  Company  for  itself  hereby  stipulates  and  agrees  to  and 
with  the  second  party,  that  on  or  before  the  first  day  of  May,  a.d.  1874,  it  will  give 
full  and  complete  possession  of  the  property  known  as  the  Weehawken  Oil  Yards,  in 
New  Jersey,  together  with  all  buildings,  erections,  docks  and  appurtenances  thereunto, 
belonging  unto  the  second  party  to  have  and  to  hold,  with  all  revenues  derived  there- 
from, from  and  after  the  said  first  day  of  May,  a.d.  1874,  or  until  the  expiration  of 
this  agreement,  as  otherwise  herein  provided.  The  Erie  Railway  Company  further 
agrees,  at  its  own  cost,  on  or  before  the  first  day  of  May,  a.d.  1874,  to  put  said  buildings, 
erections  and  appurtenances  in  good  repair;  after  which  said  second  party  shall 
maintain  the  same  in  like  good  order,  and  to  do  all  dredging  required  to  provide  and 
preserve  the  requisite  depth  of  water. 

Seventh. — In  consideration  of  the  possession  of  said  Weehawken  Oil  Yards,  the 
second  party  hereby  agrees  to  and  with  the  Erie  Railway  Company  as  follows:  to  wit: 
To  pay  weekly  to  said  Erie  Railway  Company  the  sum  of  five  (5)  cents  on  each  and 
every  barrel  (of  45  gallons)  of  crude  oil,  and  the  same  sum  on  each  and  every  barrel 
(not  to  exceed  46  to  48  gallons)  of  the  products  of  petroleum  passing  through  or 
into  the  aforesaid  yards;  the  rate  of  five  (5)  cents  to  be  absolute  on  all  said  refined 
products,  but  subject  to  rateable  reductions  on  crude  oil,  in  case  the  terminal  charges 
on  crude  oil  are  reduced,  taking  present  schedule  of  rates  thereon  (adopted  Novem- 

[351] 


THE  HISTORY  OF  THE  STANDARD  OIL  COMPANY 

ber,  1872),  a  copy  whereof  is  hereto  annexed,  as  the  standard;  the  Erie  Railway 
Company  retaining  the  right  to  reduce  said  schedule  of  rates  on  crude,  to  meet  com- 
petition; the  second  party  further  agrees  to  conduct  said  warehouse  business  in  the 
name  of  the  Erie  Railway  Company,  at  its  own  cost  and  expense,  to  assume  such  risks 
on  the  oil,  while  in  its  possession,  as  the  Erie  Railway  Company,  or  the  Atlantic  and 
Great  Western  Railroad  Company  would  be  responsible  for  to  forwarders,  consignees, 
or  owners  after  its  arrival  and  delivery  in  cars  at  yards;  to  make  the  charges  uniform 
to  all  parties  who  use  the  yards,  or  for  whom  services  are  performed  therein,  and  always 
as  low  as  any  other  oil  yard  affording  proper  facilities  for  the  transfer,  storage  prep- 
aration and  shipment  of  the  oil  at  the  terminus  of  any  railway,  or  other  line  competing 
with  the  Erie  Railway,  at  or  adjacent  to  the  port  of  New  York,  and  generally  so  to 
manage  the  premises  as  to  give  all  patrons  of  the  road  fair  and  equal  facilities  for  their 
oil  business  at  uniform  cost,  to  retain  and  pay  the  present  superintendent  and  other 
officers  and  employees  of  the  yard,  so  long  as  their  duties  are  satisfactorily  performed, 
and  from  time  to  time  to  appoint  such  other  officers  as  shall  not  be  objected  to  by 
the  Erie  Railway  Company,  to  maintain  the  buildings,  erections,  and  mechanical 
appliances  of  the  premises  in  as  good  order  as  when  possession  is  given,  natural  wear 
and  unavoidable  (by  due  diligence)  damages  from  the  elements  excepted,  to  make 
no  rules  or  regulations  discriminating  against  any  other  shipper  or  shippers,  or  receivers. 
It  is  understood  and  agreed  that  the  consent  of  the  Erie  Railway  Company  is  to  be 
obtained  before  any  refined  or  crude  oil  shall  be  received  at  the  Weehawken  Oil  Yards, 
which  arrives  from  the